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It’s a low-growth world. Falling commodity prices and the oil sector downturn have rippled across industries as diverse as automotive and retail. And while the economies of provinces such as B.C., Ontario and Quebec are turning in strong performances — a fact that reflects Canada’s economic diversity and dynamism — the Canadian economy overall continues to grow modestly.
Yet enterprising companies can overcome the challenges of the current business environment to achieve meaningful growth. However, there’s no longer one clear path to growing revenues and improving margins; instead, business owners need to use a variety of strategies to achieve their growth goals. Embracing a global perspective is one such strategy that can help companies unlock new markets — and new opportunities to improve their business overall.
Canada is an exporting nation. Yet while a substantial number of companies export to the U.S. market, far fewer go beyond and set foot in more distant international markets.
Why? Fear, an unwillingness to take risks and lack of knowledge are common reasons why companies avoid expanding into the wider global arena. The U.S. market is a natural next step for most companies: the U.S. is Canada’s largest trading partner, with a market ten times the size of Canada’s; there are no significant language barriers; and the business cultures are very similar.
Moving further afield is another matter. Navigating international tax and regulatory matters is highly complex. Business practices in other markets can be very different from those in North America. And it can take years of patient investment and work for international opportunities to come to fruition. Many companies aren’t willing to take the chance.
That’s a shame, because it means Canadian companies often cap their growth potential by staying in the domestic and U.S. markets. It can also lead to complacency and leave Canadian companies vulnerable to foreign competition and industry disruption. To be sure, doing business internationally is challenging. But it can also push companies to become more agile, innovative, productive and competitive—and far more able to fend off foreign market incursions and stay on top of potential disruption.
For the typical midmarket Canadian company, doing business globally means selling to U.S. and other foreign customers. While an international customer base can be a powerful growth driver, but focusing on sales alone takes a limited view of what it means to do business internationally. Companies that adopt a wider perspective can unlock additional global opportunities that can have a significant impact on the bottom line.
Exceptional companies look at all aspects of their business through a global lens. International sales represents only the first step on their journey to thinking and operating in a truly global fashion. Many companies follow those sales by developing local partnerships and alliances with distributors, local manufacturers and others; this helps them deliver the level of superior service and support that domestic customers receive, which helps build trust and burnish reputations in promising new markets.
These companies also think globally in terms of operations. International customs, duties and tariffs are taken into account when making supply chain decisions to minimize costs in a never-ending search for the best value. Companies may discover that it makes sense to move certain manufacturing, distribution or other operations to other markets, whether to cut costs, capitalize on exchange rates or be close to customers.
Taking a broader view of what it means to do business globally can help Canadian companies control costs, improve margins and set the stage for future growth.
In our experience, private mid-market companies tend to approach corporate tax one-dimensionally: they concentrate on complying with tax regulations on a jurisdiction by jurisdiction basis. Yet managing tax on a global basis can help companies reduce their overall tax burden and improve the bottom line.
Canada’s foreign affiliate tax laws, which have been in place for decades, accommodate legitimate business structures that enable companies to use tax-preferred jurisdictions to manage their overall global tax rate through foreign affiliates and then repatriate the foreign profits to Canada tax-free. It’s a significant competitive advantage that many companies, especially those in the mid-market, don’t understand well or take full advantage of. These tax structures are legitimate, above-the-board and highly appropriate strategies for managing companies’ global tax burden — and light-years away from the kind of global tax avoidance schemes that make headlines and aggravate governments and regulators.
Modest growth may be the new normal for Canada’s economy, but there are still many ways Canadian companies can achieve meaningful growth. Adopting a global perspective — to growth, managing the business and tax planning, to name a few — can be one of the strategies companies use to move forward in a challenging environment. Those that do so stand to position themselves to thrive when the economy improves. A professional advisor can help you and your team map out and evaluate your growth options and develop the growth strategy that’s right for you.
If you’d like to discuss how your company can achieve its global growth ambitions, contact
John Durland, CPA, CA, Vice President of Tax Services at 416.596.1711 or [email protected]
Related Topics:International Tax
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