Adversity and smarts: Three lessons from homegrown exporters

Hibar

Ask Iain McColl about his company's first expansion into China in the 1980s, and there is an audible wince in his voice: "I'm not speaking from great experience here."

Since 1986, Mr. McColl has been president and chief executive officer of Hibar Systems Ltd., a company based in Richmond Hill, Ont., north of Toronto, that manufactures automated industrial equipment.

Hibar's international expansion has often been guided by a simple maxim: to "fish where the fish are." One of Hibar's main focuses has long been battery manufacturing, and in the eighties, that market was moving from Japan to China.

So Hibar followed – and as it turned out, moved too far, too fast.

"We didn't know the lay of the land fully," says Mr. McColl, "and it became a real school of hard knocks, and led to some real false starts."

The main fumble related to intellectual property. Mr. McColl describes how some of what Hibar saw as proprietary technology was, in his words, "borrowed" by Chinese competitors. With limited knowledge of local IP law, and grappling with the limitations of pre-internet international communications, he says "it was difficult to litigate and navigate issues around patent infringement or theft. Our philosophy at the time was to plug our nose and innovate, and make sure it didn't happen again."

Today, Hibar continues to do business with some of those same Chinese businesses it crossed paths with three decades ago. About one-third of its business is in China, and the company takes market research and cultural competency very seriously, right down to the staffing level.

"We employ people from China who know the country," says Mr. McColl.

Since the late eighties, Hibar has seen a 600-per-cent increase in revenues, Mr. McColl says, with consistently more than 97 per cent of revenues derived from export-based sales. The company has grown from about 45 employees then to almost 160 today.

Silfab

Geoff Atkins, an executive advisor at Silfab Solar Inc., concurs with that sentiment. Hiring staff with personal knowledge of export markets helped his company face down an adapt-or-die crisis in 2014.

Mississauga, Ont.-based Silfab was founded in 2011, in part to take advantage of Ontario's domestic-content requirements for renewable energy; the rules required solar projects in the province to contain 60 per cent domestic content if they wanted to qualify for the province's feed-in tariff. When those rules were lifted in 2014, the domestic market shrank to the point that the company couldn't sustain itself solely in the domestic market.

"We had to re-engineer the whole business in line with what international customers would be looking for," says Mr. Atkins.

The company positioned its Mississauga location as an advantage, able to service customers throughout North America within five days or less. The company then doubled down on cold-calling, building sales teams dedicated to its target markets: "The number-one thing was to hire people with local knowledge," says Mr. Atkins. "Our team focused on the U.S. is from that market. Our head of sales for Mexico is from Mexico; for the U.S., from California."

By 2017, Silfab was doing 90 per cent of its business in the U.S. and Mexico, though less than three years prior, its customer base was exclusively Canadian. In 2016 the company was the Clean Technology-category winner at the Ontario Export Awards.

The other factor that Mr. Atkins says clinched their move into the international market was the support of Export Development Canada (EDC).

"EDC was a critical piece for us in terms of receivables insurance," he says. "Knowing we had that protection allowed us to focus on hunting down new business."

EDC, a crown corporation that offers financing and insurance options for companies going global, is a crucial puzzle piece for many SMEs moving into international markets.

Interaxon

This was certainly the case when Interaxon Inc. – a 50-employee Toronto company specializing in high-tech wearables – was developing a partnership with Italian eyewear giant Safilo Group S.p.A.

"Safilo was a huge multinational dealing with this itty-bitty Canadian company," says Interaxon CEO Derek Luke. "Without EDC's backing we don't know if a company like Safilo would have bet on us, so it was truly invaluable."

Interaxon's partnership with Safilo produced a line of sunglasses fitted with EEG sensors that can read brainwave activity, feeding the data to an app that produces "cognitive training sessions," with applications from athletic training to meditation. It is an outgrowth of technology first deployed in the company's Muse headband.

That first product – developed in part with seed money through an Indiegogo campaign, with the first 100 units sold through Chapters-Indigo stores – itself became an unexpected export success after it landed on Amazon in 2014, and began selling especially well in a handful of markets, from Britain to Australia.

Those hotspots provided a roadmap to international expansion. But rather than leap in head first, Interaxon has taken pains to conduct reams of market research, which has affected everything from advertising to packaging.

"A company like Apple has a brand so strong that everyone will respond to it," says Mr. Luke. "We're not Apple … when we enter Japan, we're going to engage user groups and refine that product continually, to make sure it's suitable for that market. When we're in Japan, we want people there to see it as essentially a Japanese product."

In 2018, that kind of research and market engagement is dramatically easier than it was when Mr. McColl and Hibar were trying to break into east Asia in the eighties.

"We'd talk to Japan with a telex machine," recalls Mr. McColl. "It would take 27 hours to fly there, and the language barrier was much stronger." Today, he communicates in an instant with Chinese colleagues via WeChat, a Chinese social-media platform. Similarly, Interaxon's foreign expansion was aided and guided by the success of its e-commerce sales and the ease of 21st-century border-hopping.

Both Mr. McColl and Mr. Luke warn that the apparent ease of moving into exports can induce companies to jump in before they are ready.

But they also caution against excessive conservatism. "You can't be overly risk averse," says Mr. Luke. "Wait until you see a few flames to pour on the gasoline – but don't miss your chance."

THREE TIPS

Find mentors – and aim high

"Being successful is easier when other people want you to be successful," says Interaxon Inc.'s CEO Derek Luke. "You have to capture that. Someone else advocating for you, or your company, is invaluable … and don't be afraid to reach above what you think your weight class is in that search."

Take advantage of Canadian resources

"We didn't have a strong government support network when we were getting into European and Chinese markets," says Hibar Systems Ltd.'s CEO Iain McColl. "The tools available today are far, far stronger."

Organizations providing resources or programs for Canadian SMEs include the Canadian Trade Commissioner Service, Export Development Canada, the Toronto Region Board of Trade's Trade Accelerator Program (recently expanded nationally) and the Business Development Bank of Canada.

Develop local expertise

Market research is the first step, but operating in a foreign country can involve much more than tailoring your marketing strategy. Consider everything from intellectual property to political instability – and if at all possible, consider hiring individuals with direct knowledge of your target markets. "Don't assume that what works where you are, will work in another culture," Mr. Luke says.