Due South: What Canadian businesses need to know about expanding into the United States

Expanding business into different markets has taken on new meaning since the pandemic. Catching flights for overnight business trips and conferences was replaced by video conferencing and cloud services. Technology has become a staple in the global economy, acting as a gateway to do business around the world — something many experts say is here for the long haul.

Canadian companies are gearing up for a comeback story of their own by rebuilding and emerging from the pandemic stronger than ever. According to HSBC’s 2020 Navigator Survey, higher-growth businesses are more likely to invest in improved product or service quality, customer experience and expansion into new markets. It’s a price they’re willing to pay.

When it comes to expansion, the U.S. is currently considered the most attractive market for doing business. With the American economy picking up steam and showing promising signs of recovery, Canadian companies may be enticed to make inroads into the U.S. market.

As the American economy rebounds, the Biden administration recently launched the Supply Chain Disruptions Task Forceⁱ that aims to address supply chain issues brought forward by the pandemic. The group will be led by secretaries from commerce, transportation and agriculture and according to the White House, “It will convene stakeholders to diagnose problems and surface solutions - large and small, public or private - that could help alleviate bottlenecks and supply constraints.”

While part of the task force’s key mandate is to secure end-to-end domestic production for certain sectors such as critical medicines and advanced batteries, the reportⁱⁱ also makes it clear that the U.S. government aims to “work with America’s allies and partners to strengthen collective supply chain resilience.” This includes addressing semiconductor shortages and broader investment in sustainable supply chains as a whole around the world.

For Canada, companies that are engaged in the sustainable processing of critical minerals could further benefit from the task force’s new mandate that calls for greater investment in this sector. Given Canada already supplies 13 of the 35 minerals that the U.S. identifies as critical to economic and national security, along with the Joint Action Plan on Critical Minerals Collaboration signed by both countries in 2020, this is promising news for Canadian firms operating in this spaceⁱⁱⁱ.

While calls for greater supply chain collaboration should be viewed as a positive, a healthy U.S. market does not automatically guarantee success, particularly for smaller Canadian companies squaring off against much larger American firms or international competitors.

One area of concern is the negative impact due to growing U.S. protectionism.

While the trade outlook for North America isn’t quite at pre-pandemic levels, it still remains positive. To offset protectionism, companies say they’re looking to boost competitiveness (35%), partner with local firms (32%) and utilize online e-commerce platforms (29%).

But there are still big challenges facing entrepreneurs that stand in the way of conquering the U.S. market, especially as technology takes hold and more companies go digital.

“Canadian companies must prepare themselves for intense competition when entering the U.S., because it's a market 10 times the size of Canada,” says Dan Leslie, Senior Vice President, Head of Client Coverage & Deputy Head of Commercial Banking, HSBC Bank Canada. “That means companies must focus on how they're unique, different and able to create value for customers. Particularly after the pandemic, companies must ask themselves if there are better or easier ways to reach their customers. How has the supply chain changed and what opportunities does this create?”

Here are some pitfalls to watch out for that apply to businesses of any size:

1. Don’t shoot for the moon: It’s critical to keep expansion plans manageable. Start small, focus on a particular region or community, and nail it before pursuing a broader market. Finding the right niche for your expansion is crucial and it’s better to learn from mistakes made in a smaller market than to get it wrong in a mammoth one.
2. Not enough market research: Use technology to your advantage. Consider marketing products online to American customers to find out if there’s demand, research your competitors in the region(s) where you’re hoping to lay down roots, and find out what your competitive advantage is over rival companies. Ask yourself if your product is “borderless,” meaning it has no obvious Canadian fingerprints and will appeal to a wide range of potential U.S. customers who prefer to buy American.
3. Not grasping U.S. rules and regulations: A failure to comply with them, even unknowingly, will doom your expansion plans. Make sure you’re fully apprised of all tax implications, both federally and in whatever state you’re eyeing, and prepare to fully adhere to them. Consult with accountants who specialize in Canada-U.S. trade; hire one in the U.S. to join your team if you have the budget.

Not all companies will face similar challenges. Small businesses and startups may need to look for government grants or programs to help them expand and build an export market^iv. There are also online resources available that can help in terms of market research, including Export Development Canada’s Export Help Hub^v. Trade Data Online^vi provides trade statistics by product, country or U.S. state, and can even be used to see if Americans import specific products from other countries.

Medium-sized businesses should consider investing in technology and video conferencing tools if travel isn’t an immediate option. Spending on education and training for team members is also important, especially since they’re going to be navigating unfamiliar regulatory, currency and tax systems when expanding into the U.S.

Large corporations will need to establish a physical presence in the U.S., something that might be daunting on the heels of a pandemic. They need to have realistic financial estimates on everything from finding partners to large-scale marketing and advertising buys in big and expensive markets. They must also ensure they have the organizational capacity to support expansion, since it may require them to create new teams and departments to oversee the foray into a new market.

“Any business needs a network of partners who can help unlock new markets, make introductions to potential clients, advisers and suppliers and help secure capital if needed,” Leslie said. “There are also extremely strong entrepreneurial communities in many large U.S. cities that Canadian owners should quickly tap into, in addition to connecting with the relevant city or state chambers of commerce and industry associations. Working with a partner like HSBC that has experts on the ground in the biggest U.S. markets can help to make those early inroads seamless.”

The U.S. can provide growth opportunities for any company, regardless of size. But every business considering American expansion must be fully prepared to take on a truly complex market, and ensure they’ve done their homework before they make the leap.

Contact HSBC to find out more about how your business can excel as it expands.

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