International Market Expansion to Canada: A Comprehensive Guideline
As businesses flourish, global expansion becomes a general consideration—a venture into international territories, reaching out to new customers abroad or in foreign lands. Canada emerges as a compelling destination due to its stable economy, geographic accessibility and skilled workforce.
Nevertheless, before establishing your business presence in Canada, you must understand the Canadian business environment to set yourself up for a successful international expansion. Let us delve deeper into these aspects, enabling you to make a well-informed and strategic choice that aligns perfectly with your company's objectives.
Key considerations for successful market entry in Canada
Canada has made consistent advancements over a considerable period, emerging as one of the few nations that remained unaffected by the financial turmoil of 2008. This unwavering economic stability and a calm political environment make the country attractive to foreign investors seeking a dependable foundation.
The majority of the population is concentrated in regions near the Canada–US border, forming vibrant communities. Among these, Ontario, Quebec, British Columbia, and Alberta stand out as the country's largest provinces in terms of land area and population. These provinces collectively contribute to 86.5% of the nation's total population. On the other hand, the territories comprising the Northwest Territories, Nunavut, and Yukon cover a substantial portion of Canada's landmass. However, their population represents merely 0.32% of the overall count, resulting in a skewed national population density value.
Canada's corporate practices and customs provide a comforting sense of familiarity for businesses based in the United Kingdom and the United States. Canada's market-oriented system and production methods closely resemble the US, while the legal system is firmly rooted in common law familiar to British businesses. Additionally, although Canada is bilingual at the federal level, English is the main language throughout the country, with the exception of Quebec, where communication is in French with strict language laws.
Let's explore compelling reasons to consider expanding your business into Canada.
Ideal business location
From a logistical and geographical standpoint, Canada offers an ideal environment for conducting business. Its expansive landmass, strategic location, and robust transportation infrastructure make it highly accessible for foreign entrepreneurs and enterprises. Here are several reasons why Canada stands out:
- Geographical Advantage: Canada is bordered by three oceans—the Atlantic, Pacific, and Arctic—which grants it unparalleled access to global maritime transportation networks. This advantageous position facilitates efficient shipping and receiving on a large scale.
- Extensive Seaports: With over 550 seaports, Canada is a crucial hub for international shipping and trade. These ports cater to the demands of various industries and contribute to Canada's reputation as a significant player in global commerce.
- Well-connected Airports and Heliports: Canada boasts a vast network of over 1,000 airports and 370 heliports. This extensive infrastructure ensures convenient access to Canadian operations for employees, company executives, and stakeholders. It facilitates swift travel and enables efficient connectivity within the country.
Strong and growing economy
Canada has a well-established track record of maintaining positive economic growth and performance, positioning it as a secure and reliable destination for conducting business. According to the International Institute for Management Development (IMD), Canada ranks 14th globally in terms of overall economic competitiveness. It holds the 10th position worldwide in gross domestic product (GDP), with a staggering GDP of approximately US$1.7 million.
The Canadian economy has consistently demonstrated stability, making it one of the most robust economies globally. Several factors contribute to its economic strength:
- Resilient Recovery: Canada bounced back with 4.8% growth in 2021 from the impact of the COVID-19 pandemic by implementing comprehensive measures such as widespread worker vaccination and financial relief programs for citizens facing hardships. These initiatives facilitated a quick recovery and instilled confidence in the stability of the Canadian economy.
- Sustained Economic Output: Canada has consistently showcased small differences between its potential economic output and demonstrated productivity over the years. It indicates that the country effectively utilises its resources and operates close to its economic potential.
- Low Inflation and Stable Currency: Inflation in Canada remains generally low, ensuring price stability for goods and services. Moreover, the Canadian dollar has a history of being a highly stable world currency, further contributing to the overall financial security of the country.
A highly skilled and educated workforce
The workforce in Canada exhibits a high level of skill and expertise across various fields, its competitiveness, securing an impressive 8th position in the rankings by the IMD. These rankings evaluate a country's workforce investment and assess its workers' readiness to contribute to the economy.
The Canadian government significantly emphasises cultivating a well-trained and capable workforce capable of positively contributing to the domestic and international economies. To achieve this, the government implements various nationwide initiatives and incentives, including:
- Access to Labor Market Information: Canadian workers benefit from continued and reliable access to labour market information and career outlooks. This empowers them to make informed decisions and align their skills with the evolving demands of the job market.
- Lifelong Learning Opportunities: Canada promotes equal opportunities for lifelong learning, enabling workers to continuously acquire new skills and adapt to changing industry requirements. This commitment to ongoing education ensures that the workforce remains versatile and well-equipped for future challenges.
- Indigenous Skills Development: The Canadian government supports initiatives to foster skills development among Indigenous populations. By investing in the potential of Indigenous communities, Canada promotes inclusivity and diversity in the workforce, contributing to a more dynamic talent pool.
- Innovation in Training and Support Systems: Canada prioritises innovation in worker training and support systems, employing modern methods and technologies to enhance skill-building efforts. This approach ensures that workers are equipped with the latest tools and knowledge necessary for their professional growth.
- Sustainable Technology Integration: Canadian worker skill-building initiatives also incorporate sustainable technologies. By equipping workers with skills in environmentally friendly practices, Canada aligns its workforce with the demands of a greener and more sustainable future.
One of the key advantages of the Canadian workforce is its remarkable diversity. Compared to other populations worldwide, Canada boasts a rich tapestry of cultural backgrounds and ethnicities:
- Approximately 32.3% of Canadians identify as ethnically Canadian, while the majority describe their ethnicity as foreign.
- Indigenous populations in Canada are growing at twice the national rate, with over 20% of Canadians identifying with either Indigenous heritage or non-Indigenous minority racial groups.
- Nearly 22% of the Canadian population was born abroad, resulting in a highly multicultural workforce with increased multilingual capabilities and a wealth of global perspectives.
Expansive trade access
Canada actively participates in numerous international trade agreements, distinguishing itself as the sole Group of Seven (G7) country with trade agreements in place with all other six G7 nations. Its extensive portfolio of international trade agreements presents significant opportunities for foreign companies engaging in business activities within Canada. These agreements fall into three primary categories, each contributing to the global growth of Canada-based businesses:
- Free trade agreements (FTAs): FTAs facilitate economic partnerships and promote the relaxation of regulations between Canada and other nations. By reducing trade barriers, these agreements enable smoother commercial interactions and foster mutually beneficial relationships.
- Foreign investment promotion and protection agreements (FIPAs): FIPAs establish strong relationships between Canada and other countries, encouraging both parties to create favourable investments. These agreements promote the transparent sharing of investment information and provide a framework to protect each other's interests within domestic laws.
- World Trade Organization (WTO) agreements: Canada actively demonstrates its commitment to international trade laws by participating in various WTO agreements. These agreements encompass specific legal stipulations relating to intellectual property, investments, tariffs, technologies, etc. By adhering to these agreements, Canada showcases its dedication to fair and equitable trade practices.
The country is also a member of the Trans-Pacific Partnership (TPP), a comprehensive trade agreement encompassing 12 nations. While numerous trade agreements across all three categories are already in effect, many others are in various stages of development, including exploratory considerations, negotiations, and signature collection. The establishment of these agreements strengthens the trade networks that Canada participates in, positioning it as a significant player in the global market.
Cost of operations
Foreign businesses seeking to expand their presence in Canada will find the tax requirements highly favourable, including the country's low corporate income tax rate and well-designed tax codes. Canada proudly holds the distinction of having the lowest business tax among the G7 countries. Several tax policies in Canada specifically contribute to reducing the tax liability for businesses:
- Low Corporate Tax Rates: Canada maintains low tax corporate tax rates, as low as 15%, compared to other Western countries. It allows businesses to retain a significant portion of their earnings and allocate resources more effectively.
- Territorial Tax System: Canada operates under a territorial tax system, meaning foreign profits are not subject to repatriation taxes. It incentivises foreign businesses to invest and expand their operations in Canada, knowing they can repatriate their profits without additional tax burdens.
- Integration of Corporate and Shareholder Taxes: Canada has integrated corporate and shareholder taxes to prevent double taxation. It ensures that businesses and their shareholders are not taxed twice on the same income, reducing the tax burden on businesses.
While Canadian companies contribute to government operations and public services through reasonable taxes, they also maintain the capital necessary to contribute substantially to the economy. These contributions include:
- Increased Employment: Canadian companies, with their financial flexibility, can employ more workers, providing them with wages that enhance their purchasing power. It stimulates consumer spending and economic growth.
- Infrastructure Investments: Canadian companies invest in private infrastructure projects catalysing economic development. These investments create jobs, enhance connectivity, and contribute to economic growth.
- High-Quality Products at Competitive Prices: Canadian companies focus on providing high-quality products at competitive prices. By offering desirable goods and services, they keep money flowing within the economy, supporting local businesses and sustaining economic activity.
How to expand to Canada?
The following details offer a comprehensive overview of the diverse options available for market entry. Depending on your business objectives and operations, deciding on local team member hiring, entity establishment, or engaging a PEO/EOR service necessitates professional guidance.
Below, we present a concise summary of some prevalent market entry options.
Set up an Entity
Registering an entity allows companies to hire staff, sell goods/services, apply for business benefits, and more. The main entity types in Canada for foreign business owners include:
- Sole Proprietorship: It is owned and operated by a single individual. It offers simplicity and full control but no legal separation between the owner and the business.
- Limited Partnership: One or more general partners who manage the business and are personally liable or more limited partners who contribute capital but have limited liability.
- Corporation: A separate legal entity from its owners, providing limited liability protection. Shareholders own the corporation, and a board of directors manages its affairs.
- Cooperative: An organisation owned and operated by its members, who share the benefits and have a say in decision-making.
Franchising allows others in different locations to open branches of your business and operate them according to your guidelines. They pay you a fee and a percentage of profits. However, franchisees have more operational control within their local market.
Market your goods and services within a region and export them from your home region. This approach involves identifying target markets, complying with import/export regulations, and establishing distribution channels.
Partnerships can take various forms, such as joint ventures (JVs) or having a local partner to represent your firm and help generate business. In some countries, a local partner may be required to have an ownership stake in the region. Alternatively, you may need a distributor to sell your goods.
Buy a Company
By acquiring an existing company, you gain market share and access to an established customer base immediately. There are no incorporation or initial setup costs, but integration into the company culture can be challenging. However, purchasing a company can be expensive.
Licensing involves granting ownership of your product or intellectual property to parties in different regions who will sell on your behalf. By licensing your product or brand, you can expand your market reach without establishing a physical presence in Canada. You earn licensing fees or royalties based on the sales generated by the licensed parties.
Professional Employer Organisation (PEO)/Employer of Record (EOR)
A PEO or EOR service can help you expand your company in Canada without setting up a legal entity. A PEO is an outsourcing firm that provides services to small and medium-sized entities. At the same time, an EOR takes on the core compliance responsibilities of an employer on behalf of the client company.
By partnering with a PEO or EOR service provider, you can "lease" employees who work for you while officially employed by the resident firm. The PEO or EOR service handles payroll, HR requirements, and compliance with Canadian employment laws, allowing you to test the market and hire employees without the upfront capital and legal obligations of setting up a full entity.
This option suits companies that want to establish a small presence in Canada with a few employees before making a more significant investment.
Things to know in expanding your business to Canada
Research the Canadian market
Identifying the specific benefits the Canadian market can offer your business is essential. Conduct comprehensive market research in the following key areas:
- Target demographics across provinces and territories: Unlike the US, which consists of 50 states, Canada is divided into three territories (Nunavut, Northwest Territories, and Yukon) and ten provinces (including Ontario, Quebec, British Columbia, and Nova Scotia, among others). While the geography may differ, similar to the US, your target audience will likely be dispersed across various territories and provinces. Delve into research to discover the successful businesses thriving in these regions. What are customers willing to pay for your offerings? How can your offerings address their unique challenges? Moreover, do the needs and problems of your international customers differ from those of domestic customers?
- Analysing your competitors: Look closely at how competing businesses price their services and offerings. Who makes up their customer base? What distinct advantages does your business possess over them?
- Familiarising yourself with local and corporate laws: Understanding the expectations and regulations of the territory and province where you intend to conduct business is crucial. Instead of assuming that running a business in Canada is identical to operating one in the US, educate yourself about Canadian corporate law and the standards upheld by businesses in Canada. Consider seeking guidance from attorneys or legal professionals specialising in these matters.
Explore Canada's economic outlook and financial advantages
According to the OECD's latest figures, Canada's economic growth is projected to be 1.3% in 2023 and 1.5% in 2024. However, UK businesses should not rely solely on favourable economic forecasts when considering expansion. It is crucial for UK businesses to explore additional opportunities that Canada can offer.
- Cost of operations: According to a 2017 study by J.P. Morgan, the overall cost of conducting business in Canada was reported to be 14.6% lower than in the United States. Consider various cost factors such as facilities, taxes, labour, transportation, and utilities.
- Tax incentives: It is essential to explore the available tax credits and incentive programs for your business in Canada. Consult the Canada Revenue Agency to better understand the tax laws and incentives applicable to your industry. Keep in mind that incentives may vary depending on the territory and province where you plan to operate.
- Currency: The Bank of Canada provides entrepreneurs a currency converter tool. Currently, one British pound equals 1.6616 in Canadian currency. It is crucial to consider the existing exchange rate and the value of the Canadian dollar when developing plans to expand your business from the UK to Canada.
What You Should Know about Incorporating in Canada
When incorporating a business in Canada, there are two additional aspects to consider: whether to incorporate it at the federal or provincial level and whether to establish the business as a subsidiary or branch. Let's explore these terms and their key differences:
Federal or Provincial?
In Canada, you have the option to incorporate your business either at the federal level or within a specific province or territory. Federal incorporation falls under the jurisdiction of the Canada Business Corporations Act (CBCA) and allows your business to operate across multiple provinces. On the other hand, provincial incorporation occurs under regulations set by the respective province or territory where you choose to incorporate. Provincial incorporation is suitable if your business will primarily operate within that specific jurisdiction.
- Federal Incorporation: Provides nationwide recognition and enables you to conduct business across multiple provinces and territories.
- Provincial Incorporation: Limited to operating within the specific province or territory where the incorporation takes place.
Subsidiary or Branch?
A subsidiary is a separate legal entity owned by another company, referred to as the parent company. The subsidiary has its own distinct governance structure and is responsible for its operations and liabilities. It can be incorporated at either the federal or provincial level, depending on the parent company's requirements. On the other hand, a branch is an extension of the parent company. It does not have a separate legal identity but operates under the parent company's name. A branch does not require its own incorporation process and is considered an extension of the parent company's operations. A branch can be established at both the federal and provincial levels.
- Subsidiary: Provides greater separation between the parent company and the subsidiary, limiting liability to the subsidiary's assets.
- Branch: Operates as an extension of the parent company, with the parent company assuming full liability for the branch's actions.
Top Industries in Canada
Canada possesses a highly developed economy, ranking among the largest in the world. Based on the latest available data from the World Bank, the country's annual gross domestic product (GDP) in 2021 amounted to $1.98 trillion in current USD. This substantial economic output positioned Canada as the ninth-largest economy globally.
The Canadian economy revolves around four main industries: Service, Manufacturing, Natural resources, and the Mining sector.
The service industry encompasses various sectors such as transportation, education, healthcare, construction, banking, communications, retail services, tourism, and government. Notably, over 75% of employed Canadians work in service industries, highlighting the sector's significance in the country's workforce.
The manufacturing industry in Canada is involved in the physical or chemical transformation of materials and substances, creating new products. These products can either be finished goods ready for consumption or semi-finished goods used in further manufacturing processes. Canada's diverse industries encompass the manufacturing of various products, including food, chemicals, petroleum, fabricated metal products, machinery, transportation equipment, and more.
Mining, Quarrying, And Oil and Gas Extraction
The Canadian mining, quarrying, and oil and gas extraction industry primarily focuses on the extraction of naturally occurring minerals. While oil and gas extraction dominates this industry, other mining activities include coal mining and the extraction of various metals such as gold, silver, copper, nickel, and more. Additionally, the industry encompasses mining operations for stone, sand, gravel, clay, ceramics, and potash.
Real Estate, Rental, And Leasing
The real estate, rental, and leasing industry in Canada consists of establishments involved in various activities, including real estate management, facilitating the sale, rental, or purchase of real estate on behalf of others, real estate appraisal, rental and leasing of tangible assets such as automotive equipment, and leasing of nonfinancial intangible assets like copyrighted works.
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Whether unlocking new opportunities or overcoming obstacles, gigCMO is ready to provide extensive knowledge and help your businesses thrive. Take the first step towards optimising your marketing efforts and driving success in Canada.