By Stephen Armstrong & Robert Kelle on 17 February, 2017

Think You Know Canada? Surprise & Opportunity in the North

By Stephen Armstrong & Robert Kelle
Stephen Armstrong & Robert Kelle are the co-founder of MAPLE Business Council®, an executive-level organization promoting cross-border investment, trade and entrepreneurship between Southern California and Canada and among Southern California businesses with ties to Canada.

“People around the world look to Canada as a leader in terms of diversity and acceptance”

How did you see 2016 for Canada’s economy and business environment?

Stephen Armstrong: 2016 was a year of newfound momentum led by the Justin Trudeau Administration and his vision for Canada. We saw the country embrace new opportunities with Europe, foremost the Comprehensive Economic and Trade Agreement (CETA), as well as continuing to partner closely with the United States and preparing for the incoming Trump Administration. There is a lot of momentum in Canada, and there are great opportunities to utilize the centers of innovation across the country and all of the diversity of that exists within the Canadian workforce. There was a lot of positive momentum coming out of 2016.

Robert Kelle: Canada’s brand seems to be strengthening, and that does seem to come from the Trudeau Administration and the diverse cabinet he’s assembled, which is fifty percent women, and a reflection of the Canadian population generally. People around the world view that very positively and look to Canada as a leader in terms of diversity and acceptance.

What are the key differences between the Trudeau Administration and the previous Harper Administration?

RK: There was a sense that the Harper Administration had stopped listening to the Canadian people, as he’d been in power a long time. Trudeau was elected in a landslide, and it really sent the message that the people wanted a different, more receptive voice in office. Obviously, there will be opposition to any leader, but Canadians seem to be behind Trudeau.

SA: Trudeau even has a strong brand in the US. Recent research indicates that there is a preference for Trudeau over Trump in terms of leadership style and vision. He’s doing a lot of good work as the face of Canada and as a proponent of Canadian values on a global stage. Trudeau’s election represented a preference for a more grassroots style of governance too.

Is the momentum you’re sensing mostly consumer optimism stemming from private investment, or has government investment made things easier for industry in some ways. In what areas is this momentum most visible?

SA: Canada has formal Centres of Excellence throughout the country as well as industry-led clusters of innovation that are growing rapidly, whether it be digital media in Montreal, FinTech and clean tech in Ontario, cybersecurity in New Brunswick, digital media in British Columbia to name just a few. There’s a recognition that Canada has an opportunity to nurture these innovation clusters further to become more competitive globally. The key will be to promote the ecosystems around these clusters in order to grow and develop more businesses. We saw this in Waterloo. The Toronto Waterloo Corridor in Ontario is one of the most densely populated areas for startups, second only to Silicon Valley in North America. There’s a real recognition that government at the provincial and federal levels, coupled with local leadership and private investment can work together to nurture a positive business environment.

RK: Part of the reason for the heavy investment in these Centres of Excellence is because Canada has historically been a resource-dependent economy, so this is a very important effort at the diversification of the Canadian economy. We’ve really seen impressive investment from the public sector to help entrepreneurs flourish, from the college level upwards.

Where do you see opportunities for companies outside of Canada to collaborate and enter the Canadian market?

SA: There’s an opportunity for investment to connect experienced management talent with the innovation that is happening in Canada in order to further grow businesses. America can help both in terms of capital and management talent that will continue to nurture Canadian companies. As these businesses mature in Canada, there is an obvious need for them to be successful in the United States, given that the market is ten times larger than Canada. And yet, there isn’t always a mechanism to help companies make the transition from successful Canadian startup to a company that thrives in the United States. At MAPLE, we’ve recognized the opportunity for entrepreneurial tourism to provide Canadian companies with resources for entering American markets. This can be mentoring, market matching, or access to potential customers and investors. An organization like MAPLE can be helpful in this regard because we understand the Canadian market and the environment in Southern California, so we can bring together a network of people who are eager to help a Canadian startup explore their market potential in the US.

At what point in a Canadian company’s growth does it start to seriously think about expanding to the United States?

SA: They likely think about it from day one. A passionate entrepreneur is always thinking about bringing his or her idea to the biggest markets possible, but there’s also a recognition that you need to validate your product in Canada first. Obviously you need to be financially healthy, and have a track record of success and meeting a market need before expanding beyond Canada.

Canada can play a role as a springboard to further global market development for a US business because of the trade agreements that Canada has with other countries, like the recent Comprehensive Economic and Trade Agreement with Europe, which means lower tariffs with the European Union. Utilizing Canada as a springboard to additional international markets could be particularly attractive given the spirit of protectionism rising within the US.

“Canada is a great place to cut your teeth because of its relative similarity to the US.”

What do you see as the primary risks of operating in Canada? Is there anything new, or do they tend to be constants. For example, the assumption that Canada and the US are the same?

RK: The first risk that comes to mind is the future of NAFTA, given the various political communications about the future of the trade agreement. I think forward-thinking business people will be proactive in terms of recognizing that something could happen with NAFTA, and take precautions accordingly.

What are your interpretations of the Trump Administration’s approach to Canada? Similarly, what are you seeing from the Trudeau Administration toward the US, and how will this impact the business environment?

RK: Canada has been a trading nation since its origin, and a huge number of Canada’s exports come to the US, so the Canadian economy is heavily dependent on the US economy, but it is a very balanced and interdependent trade relationship. This is true in key sectors like automotive, aerospace, and defense. It has been said that there is no such thing as an American car because so many parts and components cross the border, sometimes multiple times. In aerospace and defense, plane components and subcomponents cross the border multiple times. The American and Canadian militaries are also closely interconnected. We feel that despite the Trump Administration’s pro-America stance, this rhetoric is not aimed at Canada as much as places like Mexico.

General Electric recently made a significant investment in Ontario, which partially had to do with access to talent in the region. Thomson Reuters and Lexus have made investments in the Waterloo region. Again, this is more the result of access to talent than cost of labor. The Trump Administration is unlikely to have a drastic impact on the deep and longstanding relationships that exist across the border.

SA: I agree. Pragmatism will win out. There are more controversial trading relationships than Canada for the US to address. It’s a balanced and interdependent trading relationship, that doesn’t have the immigration or trade imbalance issues that plague other trade relationships like Mexico or China. There will probably be refinements to agreements as part of the spirit of “America First”, but America has always been first for US administrations. From the Canadian perspective, our GDP is heavily tied to trade with America. 49 percent of Ontario’s GDP is represented by Canada-US trade. This figure is 23 percent in Quebec. Other than maybe Vermont, no US state has numbers approaching these figures. There may be changes, but given the number of jobs tied to this trade relationship, they won’t be as severe as many fear.

RK: 35 states count Canada as their number one export destination, which also speaks to Stephen’s point.

Why do you suspect Canada and Mexico were so quick to let the Trump Administration know they were open to the renegotiation of NAFTA.

RK: NAFTA has been in place a long time, and Canada’s position is that it was a good agreement at the time, but there is an opportunity to modernize NAFTA in the digital space, and now would be a good time to take a look. There’s no fear of revisiting NAFTA on the Canadian side.

SA: Obviously, if your largest customer is saying they want to make a change in their agreement with you, you’re going to listen and show that you’re responsive because of the importance of the relationship to the Canadian economy. This doesn’t necessarily mean wholesale changes, but you have to come to the table for the discussion.

What is going on at the subnational space, the consumer space and in industries like energy?

SA: We’ve seen high-end retail developing in Canada in the last two years, with Nordstrom and Saks Fifth Avenue coming into Canada. This is particularly interesting after Target failed in Canada. Like much of the world, Canada has an appetite for American brands, so it’s always noteworthy when prominent brands like Nordstrom do enter the Canadian market.

RK: Canadians like to buy on value, so great brands that come north and bring the full experience are going to do well. Canadians love to travel to the United States, so they are familiar with the top American brands, and they are excited to see those brands coming into Canada.

Why do you think high-end retail has done so well in Canada?

SA: It was an underdeveloped market in Canada. There are a few high-end retailers in Canada, but because of media spillover from the US and the frequency with which Canadians visit the US, consumers are familiar with American brands and want them in Canada. With money spilling into markets like Vancouver and Toronto from Asia, there is increased demand for world-class brands.

What are some other industries that are shaping the Canadian landscape?

RK: There’s been a desire for alternative energy sources. Obviously, Canada’s economy is heavily dependent on oil, but Canadians are very conscious of the environment, and have been embracing renewable energy. We’re already seeing cross-border partnerships, with a deal signed between a major Canadian innovation centre and the LA Cleantech Incubator (LACI) to support the development of clean energy. You may see more research dollars for green tech going forward, as the Canadian government believes strongly in it. This backing from the Canadian government could be particularly important if funding for clean energy dries up in the US.

SA: Keep an eye on arts and culture in Canada. We’re at a zenith in Canadian musical success on the world stage, with artists like Drake and The Weeknd topping the American charts. The creative arts and film scene in British Columbia has never been stronger, with productions benefitting from tax credits, local talent and digital media expertise and the favorable exchange rate.

It’s wrong to assume you know Canada just because you’ve been successful in the U.S.

What kinds of advice do you give to companies looking to expand into Canada? What is the most important thing that people get wrong about Canada?

SA: That it’s the 51st state. You have to recognize that you need to do your homework, despite the fact that we speak the same language and live in close proximity to each other. Don’t cut corners on testing your product or your messaging. It’s wrong to assume you know Canada just because you’ve been successful in the US. The similarities are important and lay a foundation for success, but you still need to understand the nuances of the market like anywhere else. This is particularly true if you’re marketing to Quebec and French Canada.

RK: It’s important to know that Canadians are very proud of their products, so incorporating local sourcing is a great way to create a partnership in Canada as opposed to simply shipping in a product.

What are some examples of companies who have gotten in wrong, and companies that have gotten it right.

SA: Target is a prime example of getting it wrong. Part of it was real estate, they didn’t purchase optimal locations for their stores after acquiring Zellers. Stores were not always fully stocked, so the customer experience in Canadian stores was inferior to what many had experienced when shopping at Target in the US. There were also price value issues, so the overall experience did not meet customer expectations.

Does anyone really stand out as having gotten it right? How do you really thrill Canadian consumers?

RK: We were in Toronto when Nordstrom opened there, and it was very well received because they brought the full experience and embraced the Canadian consumer.

SA: Becoming part of the community and integrating your brand into the local market is essential. Being active in the community and supporting the local market will always be helpful.

What’s coming up in 2017 for MAPLE that companies should be keeping an eye on?

SA: We’re continuing to grow our community and bring on new members. We’re addressing a real opportunity to have a business network home between Southern California and Canada. Our work is going to continue to be bilateral, we’re leading a delegation of businesses to Vancouver during the BC Tech Summit Week in March, and we’ve gotten great responses about that. We’ll be looking to do more of these missions in the future to overcome a lack of knowledge and promote more trade.

Topics: GetGlobal Guide, Canada, Interview Series, GetGlobal Experts

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