Expanding a business into Canada is an exciting move for an American business. Canada is often one of the first markets American businesses expand to. There are a number of good reasons for this. One is that Canada often represents a ready and waiting market. Other factors, such as shipping logistics, are also simplified between the US and Canada versus other markets.
There are still challenges for American business expansion into Canada. As with any international expansion, you’ll need to do some careful research and proceed with caution. Educating yourself and your staff about the most common obstacles to American business expansion into Canada can help you achieve success more readily when you are ready to expand.
1. Underestimating the Cost of Doing Business
Perhaps the most common stumbling block for American business expansion is the cost of doing business in Canada. Quite simply put, the cost of doing business is higher in Canada. There are a number of factors that play into this. The first is often the exchange. Canadian prices are usually higher. Employment legislation may play into this, particularly where minimum wages are concerned. Ontario and Alberta are both set to have $15 per hour minimum wages in 2019.
As the cost of paying employees increases, so too does the cost of purchasing goods. There are also other considerations. Canada is an enormous country geographically, but its population is concentrated on the US border and sparse elsewhere. The population is also much smaller than the US. The entire Canadian population is about equivalent to the state of California. As a result, it takes more money to get goods to scattered population centres.
Taxes can also be higher, particularly employment and payroll taxes, which are used to support Canada’s social welfare programs such as Medicare, the Canada Pension Plan, and Employment Insurance.
Many American firms underestimate the costs of doing business in Canada and soon find themselves exceeding their budgets on every item.
2. Expanding Too Quickly
Target has become something of a case study about how not to expand an American business into Canada. Target purchased many locations from the defunct Canadian discount brand Zellers. For years, many Canadians had been lobbying Target to come to Canada. Many Canadians made pilgrimages to Target locations in the US whenever they visited or if they lived close to the border.
Target opened with much fanfare but couldn’t live up to expectations. Logistics made it difficult to get the products Canadians were used to seeing in US stores, and prices were much higher. Target ended up closing up shop quite quickly.
Target made one other mistake. It opened about 100 stores across Canada in just under a year. That strained the budget and caused huge issues with shipping and inventory logistics. Other retailers, such as Lowe’s and Crate and Barrel, have expanded much more slowly and have been met with more success.
American business expansion should follow the model of retailers like Crate and Barrel and Lowe’s. Slow and steady will win the race when it comes to business expansion in Canada.
3. Employment Legislation
Another obstacle for American business expansion into Canada is employment legislation. Not knowing the law around hiring, employing, paying, and terminating employees can cause a good deal of headaches for American firms. Even at home, employment legislation can cause trouble for your HR staff.
In Canada, employment legislation varies among provinces and encompasses everything from what kinds of questions you can ask in an interview to how much notice you need to give an employee when you terminate their employment.
If you want to avoid these stumbling blocks during your business expansion into Canada, consider getting help from an employer of record. They can assist you in making better decisions for your business.