Doing Business in Canada? Understand the Marketplace

When a U.S. retail giant opened its first Canadian stores in Fall 2012, questions were raised about the slow path the company took to its northern expansion.  After all, dozens of U.S. businesses had already made the leap, and Canada seemed like such a natural place for the company.  But in fact, entering the Canadian market is far more complicated than meets the eye.

“You can’t just say that we are close in proximity or we both speak English, so it should be the same,” company President told the New York Times.  “We recognize there are differences.  That’s probably why we’ve been slow in coming to Canada.”

Comments like these are interesting because “similarities between the two countries” is frequently cited by American businesses as a reason why they chose Canada as their primary export market.  In fact, the International Trade Administration(ITA) reports that while fewer than one percent of all U.S. businesses export, of those that do, 58 percent export to only one country, typically Mexico or Canada.

So while choosing Canada as the starting point for your business’ export operations may seem logical, the fact is that there are cultural differences and geographic limitations that could affect your success.  For example:

Canada is officially a bi-lingual country: Although English is spoken by roughly 58 percent of Canada’s 34 million residents; the country recognizes both English and French as its official languages.  French is spoken by more than 18 percent of the population.  While most French-speakers live in Quebec, there are communities across the country where French is spoken. According to the 2011 Canadian census, a growing number of Canadians – almost 20 percent – speak a language other than English or French.

Some Canadians can be very hard to reach: While 90 percent of Canada’s population lives within 100 miles of the U.S./Canada border, and are therefore easily reachable by most delivery carriers, it’s important that you are able to reach non-urban residents.  And some of those non-urban residents are very non-urban!  For example, population density in Saskatchewan is 1.8 people per square kilometer.  In Newfoundland and Labrador the figure is 1.4 residents per square kilometer, and in Manitoba, it’s 2.2 residents per square kilometer.  Although your business may not get the bulk of its orders from the more remote regions of the country, you will need to have a plan in place to reach all Canadians.

Canadians don’t like surprises – not in the form of hidden fees anyways! When the Canadian dollar reached parity with the U.S. dollar in 2007 – for the first time in 30 years – Canadian consumers responded to their newfound buying power with a surge in orders for U.S. goods.  But much of their anticipated cost savings quickly evaporated, when consumers were hit with unexpected bills for fees and delivery charges.  Unexpected and additional delivery charges are a significant issue for Canadian consumers – a definite no no – and they are completely avoidable.  The “Non-Resident Importer” program was developed as a way for U.S. businesses to act as an importer of record, which means that all taxes and customs fees can be paid in advance.  Make sure your business – or the partner you choose to handle your logistics – is a NRI program participant.

Having a link to Canada is important: A study by Leger Marketing found that 63 percent of Canadians have an interest in whether or not the products they are buying were made in Canada – and are willing to pay more for homemade goods.  Thus it seems obvious that a U.S. business interested in expanding to the Canadian market would be wise to align itself with distinctly Canadian business partners.  Consider this advisory from the U.S. government’s  Doing Business in Canada:  A Country Commercial Guide for U.S. Companies: “An important key to achieving market penetration and expanding export sales to Canada is to minimize the Canadian customer’s work by making the transaction resemble a Canadian domestic transaction as much as possible….”

Many U.S. businesses make the mistake of entering the Canadian market without doing their homework.  After all, they reason, our countries have so many similarities, how hard can it be?  In fact, doing business in Canada can be very complicated, bureaucratic and confusing.  Do your due diligence before you reach out to Canadian consumers, and make sure you take into account the unique characteristics of that market, including those listed above.