Selecting Your Target Market
As part of CanadianManufacturing.com’s Export Insights 2018 report, Canadian business leaders were asked where they export to. Study conducted by RK Insights. World GDP data courtesy of The World Bank
You may already have a target market in mind, but if not, some research will be required to determine the best place to expand to internationally. Every market is different. They all carry varying degrees of risk and challenges, and present different opportunities depending on your industry or the sales channel or market entry strategy you want to employ.
For most Canadian companies, the first market they expand to is the United States, and this is generally a good choice. We speak the same language, have similar laws and cultural values, and shipping to Detroit is a lot less complicated and expensive than shipping to Shanghai. For these reasons, the U.S. is a perfect first stop for novice exporters. However, the U.S. is also very competitive, and the rising tide of protectionism there hasn’t done Canadian exporters any favours.
The challenges associated with the U.S. market aren’t reason enough to avoid it, but they should motivate exporters to at least look beyond the U.S. and consider other options.
Think Beyond the U.S.
Canada now has a free trade agreement with the European Union, effectively eliminating 98 per cent of tariff lines. Tariff free access to the world’s largest single market is something that can’t be ignored.
Our government is also pursuing closer ties with China. This gargantuan Asian powerhouse has already surpassed the U.S. in GDP at purchasing power parity, and it could be the biggest economy in the world by 2030. The e-commerce space in China is particularly lucrative, as Chinese consumers much prefer shopping online to brick and mortar shops.
Beyond China, India, South East Asia and the Asia Pacific region in general offer bountiful opportunities:
Asia Pacific is the fastest growing economic region on Earth, growing at roughly 5 per cent per year. To put this into perspective, the U.S., the world’s biggest economy, is only growing at around 2 per cent per year.
This May 2017 report from the International Monetary Fund shows optimistic growth forecasts for Asia Pacific in the near term.
Africa and South and Central America also offer promise for exporters.
Due to weak global demand, exports shrank in the developing world over 2015-2016. However, there were still success stories in Africa, South Asia and Latin America. Beyond the short term, higher growth rates in the world’s premier developing economies than those in the developed world point to a change in the makeup of the global trade landscape. DATA: World Trade Organization
Emerging markets in general are great places to start trading into or investing in. While advanced economies in Europe and North America are slowing down, those in Asia, Africa and Latin America are growing fast.
This February 2017 PricewaterhouseCoopers report predicts a very different economic landscape in 2050 from the current global pecking order: with China, India and Indonesia firmly entrenched as the world’s first, second and fourth largest economies respectively. PricewaterhouseCoopers currently has China as Earth’s largest economy when GDP is measured by purchasing power parity. The same report sees the biggest economic growth spurts over same period (2016 to 2050) occurring in the developing world: with Vietnam, the Philippines and Nigeria all shooting into the top 20 of the largest global economies by 2050.
Many of these emerging markets have special challenges, like security risks, political instability, state interference and a generally difficult climate to do business in. However, the opportunities of the future are in the developing world, and as these economies expand they will attract more foreign attention. By getting in on the ground floor in markets set to take off, markets with immense potential that haven’t reached the level of China or India, you can edge out your rivals and position yourself favourably in these promising regions.
Free Trade Agreements
When determining which market to break into, keep in mind that Canada has free trade agreements in place with a number of countries and trading blocs across the world: North America, the European Union, the European Free Trade Association, Chile, Colombia, Costa Rica, Honduras, Israel, Jordan, Panama, Peru, South Korea and Ukraine.
The future of the Trans-Pacific Partnership (TPP), a gargantuan trade agreement between East Asian and American countries, was in-doubt when the Trump Administration pulled out of the proposed deal in January 2017. However, after a year of negotiations between the remaining partner countries, the revamped TPP is moving forward without the U.S.
The deal will bind Canada economically with the following countries: Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and Japan.
Our government is also in trade talks with China, India and several nations and trading blocs in South East Asia, Central and South America, Africa and Asia.
More information on free trade agreements can be found in section 5.2.
Market Research Resources
Export Development Canada
Export Development Canada conducts extensive market research for countries across the world. Most of this information is available on their website, but this “Country Info” page is a good launch point, segmenting information on the world’s nations by region. Here you will find market fact sheets, news updates, full reports, webinars and links to trade organizations in specific markets.
Global Affairs
You can find a similar database on the Global Affairs Canada website. The “Country Insights” section offers information on history, geography, culture and business etiquette, politics, and the economic landscape for most of the world’s viable markets.
The Trade Commissioner Service also provides market reports for specific sectors in various international markets. These reports are segmented by geography and sector.
Canadian Government
For trade statistics on goods in over 200 countries, check out Trade Data Online, hosted by Innovation, Science and Economic Development Canada. Data is compiled from Statistics Canada and the U.S. Census Bureau, and you can search by product (HS) or industry (NAICS). Trade Data Online can help you find new import or export markets, determine competition for your product, find a country’s trade balance, and discover which products countries are importing, exporting or re-exporting.
The Canadian Importers Database provides information on companies importing goods from foreign markets into Canada. This database, combined with the Canadian Company Capabilities directory, can help you find partners or customers for a new international trade venture.
Market reports and information on food and beverage exports can be found at Agriculture & Agri-food Canada.
The International Trade Centre
The International Trade Centre’s (ITC) Trade Map database provides export statistics in a visual medium. Information is broken down into tables, graphs and maps. You can find monthly, quarterly and yearly trade flows for 5300 Harmonized System categorized products and 220 countries. This database helps paint a picture of export performance, international demand and the level of competition in specific markets.
The ITC also has a database for tariff and non-tariff trading barriers, the Market Access Map:
A database dedicated to foreign direct investment information is also available, the Investment Map, along with a resource which guides companies on sustainable business practices, the Sustainability Map.
GlobalEdge
GlobalEDGE is another very useful resource for market research. Created by the International Business Centre at Michigan State University, it has information on almost every nation on Earth, along with the world’s various trade blocs. However, GlobalEDGE also lets you compare statistical data from different countries side by side, aiding in the decision process of which markets to target. The database also provides a Market Potential Index, country rankings for various statistical categories, a Global Resource Directory and online business courses.
GlobalEDGE is American, so the information is not tailored to Canadian exporters, but for a comprehensive view of the economic nuts and bolts of the countries you are interested in expanding to, it is very helpful.
CIA
The U.S.’s Central Intelligence Agency produces a World Factbook, which has geographic, demographic, cultural, economic, infrastructure and political information for every nation on Earth. The CIA World Factbook also allows you to compare country statistics side by side. The Factbook provides raw data that isn’t skewed towards trade or market analysis, but from a purely informational perspective it is useful.
United Nations Data
UNdata is a statistical database that pulls together over 30 databases from the UN’s various divisions and records from various national and international organizations into one portal.
Country profiles, advanced search functions and glossaries of information are available to aid research. Information from over 60 million data points is available on trade, agriculture, industry, human development, information and communication technology, population, and human development.
The database is still in the early stage of development, but is continuously being updated.
Eurostat
Eurostat is the official statistical database for the European Union. It curates and publishes data collected by EU member states, and ensures that information is standardized and comparable.
You can find trade volumes, economic and financial information for every country in the union, as well as sector and industry specific statistics for both individual countries and the union as a whole. Clean and organized tables make it very easy to compare data from country to country.
Finding information is relatively straight forward. You can search by keyword, or browse file trees segmented by theme, country or alphabetically.
In addition to up-to-date stats on industries and countries, Eurostat has an exhaustive catalogue of reports on issues and initiatives significant to the economic health and future of the EU. There is also a news page, updated daily and populated with news on statistical changes of economic significance.
The World Bank
The World Bank’s Doing Business rankings chart the ease of doing business in 190 countries.
A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm.
Nations are ranked on a number of different categories.
Tariff Search Tools
When researching new markets, it’s important to understand what kind of tariffs your product you will face, if there are any non-tariff barriers you need to be aware of, and what that country’s import trends say about the viability of your product (if there is a market for it).
The World Trade Organization (WTO) offers a database called Tariff Analysis Online that allows firms to look up information on tariffs, tariff quotas, imports and countries’ commitments to subsidies.
The WTO’s Tariff Download Facility provides similar information, but in a simpler form.
The Canadian government also provides a convenient way to look up tariff lines on your product in different countries:
Tariff Finder is a joint collaboration between the Trade Commissioner Service, Export Development Canada and the Business Development Bank of Canada. You can look up tariffs by their Harmonized System code or by keyword.
Harmonized System Codes
The Harmonized Commodity Description and Coding System, generally referred to as Harmonized System (HS), is a multipurpose international product nomenclature developed by the World Customs Organization (WCO).
HS is used specifically to categorize products, and it differs from another common code classification system, North American Industry Classification System (NAICS), which is used to categorize industries. Detailed information on NAICS codes can be found in section 3.1. HS comprises about 5,000 commodity groups; each identified by a six digit code.
The system is used by more than 200 countries and economies as a basis for their customs tariffs, and for the collection of international trade statistics. Over 98 per cent of the merchandise in international trade is classified using HS, what the WCO describes as a universal economic language and an indispensable tool for international trade.
HS is used by governments, international organizations and the private sector for customs and trade classifications, non-documentary trade data interchange, internal taxes, trade policies, monitoring of controlled goods, transport statistics, price monitoring, quota controls, compilation of national accounts, economic research and analysis, rules of origin, quota controls, and freight tariffs.
WCO prepares amendments to the HS system every 5 to 6 years.
Source: World Customs Organization
For the purposes of SMEs looking to export, the three most important functions of HS are discerning rules of origin, tariffs and quota controls.
When it comes to tariffs and quota controls, looking up a product’s HS code performs a relatively simple role. You need to know what kind of duties you will be assessed bringing that product into the country in question, and if the government has placed quotas or restrictions on the import of that product.
Discerning a product’s origin is a more complicated process.
Rules of Origin
Rules of origin are the criteria needed to determine the national source of a product.
Duties and restrictions in many countries depend on the source of imports, so understanding how rules of origin work is crucial.
Some governments use rules of origin to implement commercial policy measures like anti-dumping tariffs, to determine whether products will receive preferential treatment, to apply labeling and marketing requirements, and for determining which products can be purchased for government procurement.
Within the Wold Trade Organization framework, all member countries have the right to determine their own origin rules, and can maintain several different rules of origin depending on the purpose of a particular regulation, but at the same time, members need to commit to minimizing the complexity of import and export regulations. The WTO says its members are expected to ensure that their rules of origin are transparent; that they are administered in a consistent, uniform, impartial and reasonable manner; and that they are based on a positive standard.
Source: World Trade Organization
Your job as an exporter is to determine if there are rules of origin regulations for your product in the market you are trying to break into, and if that’s the case, will your products be subject to higher duties or restrictions as a result? Conversely, if Canada has a free trade agreement with the country in question, your product could benefit from a lower duty or be completely duty free if it passes the “Made in Canada” test. Either way, you need to find out.
Determining if your product falls under rules of origin regulations can either be a simple or complex process. When dealing with agricultural products for example, it is relatively clear that your product was produced in Canada, but when dealing with products that have multiple components, several of which could have been made in different countries and involved in intricate, global supply chains, it becomes a much more difficult process.
As stated previously, rules of origin differ from country to country, and they vary in flexibility within the parameters of various free trade agreements. To determine if your product falls under rules of origin regulations, and whether this is good news or bad, you can find quick answers on tariff databases. For more complex information, such as how to classify goods with components made in multiple countries, consult a Trade Commissioner or a lawyer with expertise in international trade.
Source: Cole International
