Making It in Canada: Opportunities and Risks for Manufacturers
- Keywords:
- cross border
For U.S.-based manufacturing companies looking to expand into international markets, Canada represents a logical entry point. From the nature of its economy to its location, Canada offers plenty of opportunities.
But all the surface similarities between the two countries means it can be easy to fall into a false sense of how smooth the transition is. For all the opportunities, U.S. manufacturers should also be aware of the pitfalls that can potentially spoil your expansion plans. That’s why laying the groundwork well ahead of time, including finding the right people to help you early in the process, is essential.
Opportunities on Multiple Fronts
Manufacturers, in particular, should take note that Canada is largely a commodity-driven economy. Though raw materials like timber and metals are widely available in the U.S., Canada is often a desirable source of such products for U.S. manufacturers because of their quality, price and the industry’s robust supply chain.
While access to quality labor is constrained in the U.S., Canada’s more favorable immigration policy helps make for a deeper labor force. The country is also taking steps to help manufacturers develop skilled workers by offering incentives for apprenticeship programs.1
Establishing a presence in Canada can also open up additional international markets. With the U.S. levying tariffs on various goods from the EU, some U.S.-based companies are looking to Canada as a means for selling products in Europe through the Canadian-European Union Comprehensive Economic and Trade Agreement (CETA).2 By establishing a manufacturing presence in Canada, a U.S. company can realize potential tariff and other trade advantages when selling in the EU.
Like Silicon Valley and other U.S. regions, Canada boasts geographic areas with concentrated industry talent, such as food processing companies in Ontario (we’ve seen several U.S. food processors express interest in doing business across the border). The government has also been working with the private sector to create five industry superclusters to boost Canada’s standing as a leader in innovation.3 Among the superclusters are next-generation manufacturing firms in Ontario and the protein industries in the Prairie provinces,4 making it easier for manufacturers to locate talent for their particular niche.
And thanks to tax credits available through the country’s Scientific Research and Experimental Development Tax Incentive Program,5 we’ve also seen some U.S. companies growing their R&D departments in Canada. The country also offers tax incentives for certain industries, such as computer animation and special effects production.
That access to innovation, skilled labor and additional markets—at a potentially lower cost than in the U.S. given tax credits and a favorable exchange rate—is proving attractive to U.S. manufacturers looking to bolster their R&D efforts.
Doing Your Homework
On the surface, doing business in Canada can seem similar to the U.S. With the exception of Quebec, there are no language barriers to overcome, and it’s a relatively easy market to reach geographically speaking.
But in many crucial ways, it’s a different ballgame. The biggest mistake we see companies make is in underestimating those differences. It’s easy to get tripped up over cross-border tax laws and Canada’s regulatory environment. That’s why access to, lawyers, tax advisers and bankers with cross-border expertise is essential.
Other areas you’ll need to consider include:
- Human resources regulations.
- The process for obtaining construction permits, registering a property or getting access to utilities.
- How to set up your payroll system, including insurance requirements.
- Banking regulations.
- Intellectual property laws.
Know Your Neighbors
Knowing the logistical basics is important, but so is developing strong relationships in the Canadian business community. Understanding the culture of the markets you’re exploring (and of Canada as a whole) is a good way to establish a solid foundation for your expansion plans. Otherwise, how will you know who you should be doing business with? How will you develop a strong, reliable sales force? How will you understand the regional differences within the country?
That’s why the companies we’ve seen have the most success are the ones willing to get involved in the local Canadian business communities and become good corporate citizens. Their staffing starts with finding the right local leaders who can help you lay the necessary groundwork from a logistical, regulatory and human capital perspective. While some companies are eager to begin finding new customers by adding sales staff, you shouldn’t underestimate the need for a good HR leader. Ideally, this person can help navigate the tax and regulatory issues around staffing, as well as help translate your vision and culture to a local workforce.
Establishing operations in Canada can help U.S. manufacturers on several fronts, from access to top talent to less-complex entry into new international markets. How you prepare, however, can mean the difference between a successful extension of your U.S. operations and potentially years of delays in getting your expansion off the ground, or worse—significant time and money spent on a failed venture. Bottom line: the first steps are the most critical to your future success.
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Ray Whitacre
Head, BMO Commercial Bank, U.S.
As Head, BMO Commercial Bank, U.S., Ray is responsible for developing and implementing strategy, building new customer relationships and overseeing the overall fina…(..)
View Full Profile >For U.S.-based manufacturing companies looking to expand into international markets, Canada represents a logical entry point. From the nature of its economy to its location, Canada offers plenty of opportunities.
But all the surface similarities between the two countries means it can be easy to fall into a false sense of how smooth the transition is. For all the opportunities, U.S. manufacturers should also be aware of the pitfalls that can potentially spoil your expansion plans. That’s why laying the groundwork well ahead of time, including finding the right people to help you early in the process, is essential.
Opportunities on Multiple Fronts
Manufacturers, in particular, should take note that Canada is largely a commodity-driven economy. Though raw materials like timber and metals are widely available in the U.S., Canada is often a desirable source of such products for U.S. manufacturers because of their quality, price and the industry’s robust supply chain.
While access to quality labor is constrained in the U.S., Canada’s more favorable immigration policy helps make for a deeper labor force. The country is also taking steps to help manufacturers develop skilled workers by offering incentives for apprenticeship programs.1
Establishing a presence in Canada can also open up additional international markets. With the U.S. levying tariffs on various goods from the EU, some U.S.-based companies are looking to Canada as a means for selling products in Europe through the Canadian-European Union Comprehensive Economic and Trade Agreement (CETA).2 By establishing a manufacturing presence in Canada, a U.S. company can realize potential tariff and other trade advantages when selling in the EU.
Like Silicon Valley and other U.S. regions, Canada boasts geographic areas with concentrated industry talent, such as food processing companies in Ontario (we’ve seen several U.S. food processors express interest in doing business across the border). The government has also been working with the private sector to create five industry superclusters to boost Canada’s standing as a leader in innovation.3 Among the superclusters are next-generation manufacturing firms in Ontario and the protein industries in the Prairie provinces,4 making it easier for manufacturers to locate talent for their particular niche.
And thanks to tax credits available through the country’s Scientific Research and Experimental Development Tax Incentive Program,5 we’ve also seen some U.S. companies growing their R&D departments in Canada. The country also offers tax incentives for certain industries, such as computer animation and special effects production.
That access to innovation, skilled labor and additional markets—at a potentially lower cost than in the U.S. given tax credits and a favorable exchange rate—is proving attractive to U.S. manufacturers looking to bolster their R&D efforts.
Doing Your Homework
On the surface, doing business in Canada can seem similar to the U.S. With the exception of Quebec, there are no language barriers to overcome, and it’s a relatively easy market to reach geographically speaking.
But in many crucial ways, it’s a different ballgame. The biggest mistake we see companies make is in underestimating those differences. It’s easy to get tripped up over cross-border tax laws and Canada’s regulatory environment. That’s why access to, lawyers, tax advisers and bankers with cross-border expertise is essential.
Other areas you’ll need to consider include:
- Human resources regulations.
- The process for obtaining construction permits, registering a property or getting access to utilities.
- How to set up your payroll system, including insurance requirements.
- Banking regulations.
- Intellectual property laws.
Know Your Neighbors
Knowing the logistical basics is important, but so is developing strong relationships in the Canadian business community. Understanding the culture of the markets you’re exploring (and of Canada as a whole) is a good way to establish a solid foundation for your expansion plans. Otherwise, how will you know who you should be doing business with? How will you develop a strong, reliable sales force? How will you understand the regional differences within the country?
That’s why the companies we’ve seen have the most success are the ones willing to get involved in the local Canadian business communities and become good corporate citizens. Their staffing starts with finding the right local leaders who can help you lay the necessary groundwork from a logistical, regulatory and human capital perspective. While some companies are eager to begin finding new customers by adding sales staff, you shouldn’t underestimate the need for a good HR leader. Ideally, this person can help navigate the tax and regulatory issues around staffing, as well as help translate your vision and culture to a local workforce.
Establishing operations in Canada can help U.S. manufacturers on several fronts, from access to top talent to less-complex entry into new international markets. How you prepare, however, can mean the difference between a successful extension of your U.S. operations and potentially years of delays in getting your expansion off the ground, or worse—significant time and money spent on a failed venture. Bottom line: the first steps are the most critical to your future success.
This is part 4
of a
5-part series on
Expanding into Canada can help U.S. manufacturers, but the first steps are the most critical.
PART 1
Special Report: The Importance of Canadian Trade
Michael Gregory, CFA | September 29, 2019 Doing Business In Canada
America is running a record $900 billion deficit in goods trade. China accounts for the largest share of the shortfall at 44.6%, followed by Mexico&r…
PART 2
Discover Efficiencies with Expansion into Canada
Oscar Johnson | November 06, 2019 Doing Business In Canada, Manage Cash Flow
We’ve worked with many U.S. businesses that have expanded into Canada, so we’ve seen firsthand the difficulties that crop up when it come…
PART 3
With or Without USMCA, Canada Can Open Doors for US Companies
David Jacobson | November 13, 2019 Doing Business In Canada
There is great debate in Washington about whether Congress will ratify the United States-Mexico-Canada Agreement (USMCA) before year’s end. I h…
PART 5
Looking to Expand into Canada? Tips from our Cross Border Experts
November 04, 2019 Doing Business In Canada
Our cross border campaign, Expertise in Action, offers tips and insights for U.S.-based companies that are looking to expand their businesses no…
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