Canadian Challenges - The Top 5 "Bad and Ugly" of Doing Business in Canada

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When speaking to Canadians, working with government programs, researching immigration pathways and even seeking consulting advice - it is typically the opportunities and potential of Canada that are espoused rather than the challenges. Canada is well regarded for its high quality of life, family friendly facilities, safety and stability - for business there are clear advantages too (see BrightGo’s prior article on top 5 reasons to start a business in Canada). But we seem to be hesitant to discuss barriers and challenges, maybe it's our optimistic and polite nature or perhaps a wish to avoid some hard truths. Either way, it is important to highlight so businesses and entrepreneurs coming to do business in Canada are prepared including adjustments to their market entry strategies, growth projections and rate of returns.

1. Small Market Size

It is said that Canada doesn’t have a “start-up” problem but a “scale-up” problem. This is a point that Canadians find, so as an international business considering Canada you are not alone in this observation! There are a couple ways we deal with this - one is through being an exporting nation and two is through government and international partnerships.

Rather than adapting heavily your product or service to Canada, you may use aggregation and arbitrage strategies instead. One way to approach this is for Canada to be one part of your business chain, picking the best of to combine with other regions. Then aggregating for the optimal global operations configuration. For example, our highly educated and diverse talent pool is prime for R&D and innovation links. You may also look to any arbitrage savings that Canada can bring you. For example, if your business uses a lot of land or forestry products then abundant Canada is a prime target for you. Therefore, consider Canada not just for customers but as being a global supplier or resource.

Key to this is incorporating any shipping costs (we’re an ocean away from both Asia and Europe) into your calculation. But if you are a tech based company, digitizations and dematerialization may make “shipping” irrelevant. Another consideration is depending on how much work is done in Canada for your product, you may qualify for Canada Origin status which then gives preferential treatment to 40+ countries through the extensive Free Trade Agreements that Canada participates in.

A specific note about government partnerships are some programs that give you direct access to their procurement offices. This can provide a large, anchor customer that guarantees a certain amount of initial sales.

2. High Levels of Regulation including Inter-Provincially

A common complaint of Canadian and international companies doing business in Canada is that each province or territory can have different rules and even restrictions to interprovincial trade. Add to this our double edged diversity that can mean marketing adaptation to culture and language differences in different regions. From a business perspective, it seems like not just one country you need to adapt to but 13 different ones. This issue has been recently formally addresses in the the new Canada Free Trade Agreement. The intent is to reduce barriers to trade, labour mobility, and financing within Canada and to increase the openness, efficiency and stability of our domestic market.

For languages, all required information (for example the common name and ingredients) for food and non-food products must be in both English and French with a few exceptions. Some of these exceptions are:

  • Official test market products are exempt (excellent news when you are just starting in Canada!)

  • If the item requires knowledge of a language to use it (for example a game) then it only needs to be in that language

  • If you are selling products in Quebec, there are some additional rules including that if a product can only be used in English (for example that game) then the equivalent product needs to be also available in French

  • More information on specific rules can be found through Charter of the French Language, Section 54; Consumer Packaging and Labelling Act; and the Guide to Food Labelling and Advertising

3. Protectionism

Under the Investment Canada Act, if non-Canadian individuals, companies or State Owned Enterprises are involved in the acquisition or running of certain types of businesses, they will face additional scrutiny and possible denial by the government. These include:

  • Cultural industries such as film, books, news media, TV and music

  • National security related industries such as transfer of sensitive know-how / technology, defence or intelligence related equipment production, critical infrastructure (health, safety, security, communications), and investments that could facilitate crime

The other one to be aware of is sectors run by our State Owned Enterprises or as we call them, Crown Corporations (as in the Crown or Queen owns them). Provincially these often include electricity, liquor, gambling, and auto insurance and the federal Canadian Commercial Corporation and Export Development Canada. They often have a mandate for a balance between revenue generation and providing regulated services to citizens.

4. Stable

You may have noticed that Canada is a G7 member but not one of the top 7 economies globally. We rank number 10. We have an outsized role internationally because of this calm and stable approach we have. BrightGo has written before about the advantages of a stable economy and government but for some businesses, this stability is actually a negative. Low risk, slow and steady isn’t generally correlated with quick high reward.

One method of value extraction is applying a technology or method that you are familiar with to the new location - and as a developed nation there may not be as much variability than a developing nation to take advantage of these differences.

However, for mature industries, long production cycles and those requiring heavy up-front investment, this stability is a positive. There are no concerns about nationalization, uncertain demographic shifts or high inflation in Canada.

5. Unclear Routes to Influence

In some countries it is very clear that as a new, growing or large business that you work with select officials in government or fund certain campaigns. In Canada, there are strict rules around working directly with government officials which is enforced by the Office of the Commissioner of Lobbying in Canada. The focus is on the transparency and legitimacy of decisions government officials make. Lobbying is allowed but within set guidelines - make sure you or consultants that work with you are familiar with these as fines, bans and even jail time are consequences of not following.

There are also strict rules on political donations including no cash or anonymous donors. Government officials have strict rules on gift and entertainment acceptance and disclosure which varies federally, provincially and municipally. Tread carefully as limits are low to $0. Federally, personal donations to their campaigns are up to $1,500. Additionally, each province may have different rules including potential forthcoming changes in BC that seek to ban donations unless done by an individual.

Other ways to have influence on policy, bills, regulations and awarding of contracts include:

Canada presents many opportunities - as long as you understand and appreciate the challenges. There is much success awaiting the companies and entrepreneurs who’ve done their due diligence, are strategic in Canada’s role in their business and are prepared for a long-term investment. One of the first steps BrightGo Solutions often helps international companies with, is their plan for Canada - what’s different about doing business in Canada and how you can amplify your success. Contact us for more information and to get started on a partnership.