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Bienvenue: Considerations for US companies looking to expand to Canada

For many of us in Canada, we often view expansion to the USA as the ultimate sign that you have reached an inflection point in your growth. We used to have a saying in a company I worked with years ago that going into the US from Canada, you couldn’t bring a knife to a gunfight, meaning we had to forget many of our Canadian ways and adapt to the US way of doing things to succeed. I’d like to focus this article on the other way around, what US companies may want to consider when trying to enter Canada. Its an appealing market on paper with the approximately the GDP of California, mostly speaks English, is geographically close, and follows similar legal systems. However, Canada is lined with the remains of failed US businesses thinking they could come here and succeed, but did not for one reason or another. I am going to keep this article somewhat general, but I will focus on utility and field service firms where I can. Below are several important factors you need to consider to ensure a successful expansion.

  1. Understand the Market: Take the time and spend some money to understand the Canadian market, client relationships and preferences, local competition, and regulatory environment. Employ a consulting firm, hire a contracted local subject matter expert (SME) to develop data and make introductions. Some markets and geographies are quite protective and will focus on local relationships and businesses. It can be an uphill battle for someone from Ontario to gain a foothold in other provinces, so a US company will face an even bigger challenge.
  2. Employment and Labour Laws: Even the spelling of ‘labour’ is different here. Its important to understand Canadian labour laws, employment contracts, and regulations when hiring Canadian employees or setting up local operations. This is often a significant challenge for a US firm and in my experience, this is where Canada has considerably different regulations, processes, and employee protections in place vs the US. Benefits, pensions, healthcare, deductions, parental leave, taxation, vacation, time off, OT, working hours and much more is different than many US state and federal processes and regulations. This is often more complicated for field service employees given the additional complexity in staffing, layoffs, OT, and planning involved with field labour.
  3. Federal vs Provincial Jurisdiction: This is similar in setup to the US for federal vs state responsibilities that the federal government has control over certain things (cross provincial and federal borders, customs, and taxation for example) and provinces have control over others (healthcare and business registrations for example). This has additional complexity from a language and legal perspective as federally regulated industries have separate legal requirements from provincially regulated ones. An example is telecommunications firms that operate across provincial borders and are federally regulated vs a general field construction firm that will be provincially regulated. This can have contractual, legal, regulatory, safety, environmental, and language implications for your business if you are working for a federally regulated company.
  4. Customs and Cross Border Logistics: Where I have seen many challenges is trying to bring people, equipment, and assets in to supplement the Canadian business. This requires careful planning and legal oversight to avoid long term repercussions as if someone or a service gets turned away, it makes it more difficult in the future. USCMA (NAFTA) doesn’t apply to people and equipment the same as it does to products.
  5. Language and Cultural Differences: I mentioned something earlier when I noted we spell some things different and we use different measurements and even cultural references. We are used to working in two worlds between the US and Canada, but having your Canadian strategy covered from these small items can help minimize potential roadblocks and gain acceptance quicker with clients and employees. And remember, there are 2 official languages and 2 separate legal systems depending on the province.
  6. Client and Process Requirements: I worked with a US company that involved services similar to those being done in Canada too. The US company was able to do these services at 1/5 of the time it took the Canadian service provider at a fraction of the cost and with a much faster turnaround time.  On the service, it seems like they could be well positioned to succeed in an entry to Canada and offer a competitive jolt. On a deeper dive however, the client and industry requirements were drastically different as well as labour laws and costs, so once you factored all this in, the difference was neutralized and in fact, it made it unfeasible for this firm to enter Canada quickly because it would be such a step change in its service offering and require new systems and processes first. So even though the core technical and field aspect of the service was similar, more care was still needed to ensure services could meet client needs.
  7. Pricing and Costing: Things are more often than not more expensive in Canada. Avoid the mistake of assuming you can operate with your current US cost structure. Currency exchange, labour/union costs, consumer preferences, regulatory costs, geographic challenges, taxation, customs/supply chain differences, and many other variables contribute to this.  In my experience, due to the smaller market shares available and higher costs of entry, this often translates to less competitive pressure to bring costs down. While not the only reason, it can be a contributor to our costs. Ironically, in the other direction this is often a mistake Canadian firms make when entering the US that they don’t realize how much more price competitive markets are there. There are three main areas I have seen where the Canadian market is lower cost though for a business – executive compensation, local taxes, and health benefits. So many differences to consider when pricing and costing your services, so just take the time to understand it all with a local consultant or SME before going in with your current mindset.
  8. Taxes: Rates, deductions, and reporting requirements can be different from the USA. This is from both a business and employee level. It will impact you running the business, but also if you have local employees.
  9. Manage Expectations: The rule of thumb is the overall market for a service/product/industry in Canada is about 1/8th to 1/10th of the similar US market. Manage expectations going in that entering Canada, while a big opportunity, will always be small compared to the size of the US. And this is not evenly distributed across the country and if you are not ready to enter Quebec from a language, legal, cultural perspective, you immediately cut out 1/5th or so of that potential market too. All considerations to keep in mind.

Many more things can be contemplated such as supply chain logistics, regulations, customer service, payment processing, IP, marketing, etc. But these are things you would do entering any US or Canadian market and are more business decisions, so just be aware and prepared.

Additional Considerations for entering Canada:

  1. Engage a local consultant, SME, contract employees, etc to give you the intel, provide data, and open doors
  2. Consider M&A. While more costly, purchasing a local company will provide immediate access to systems, resources, assets, and knowhow and a base from which to expand.
  3. Consider partnering with a local service company in the same space that you can provide upside to (technology, discounts, supplies, US introductions) in return for guidance and opening doors with clients and stakeholders.
  4. Attend conferences and industry groups to gain intel, meet clients, start gaining brand recognition.

Canada can be a logical next step for a US company and one that should more definitely be considered. As long as expectations are set, research and preparation is done, and locals are engaged with effectively, expansion can be managed successfully.

Ron Laidman, MBA, C.Dir., P.Eng.

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