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CHAPTER THREE
MARKET INFORMATION/INTELLIGENCE SERVICES

THE NEED

The sources, quality, utility, timeliness and cost of information all affect a firm's ability to interpret the available information and use it to pursue a successful export strategy. Among the important information requirements for SMEs are the following:

There is a myriad of sources of information, including personal contacts, agents and distributors, suppliers, potential customers, trade shows and missions, news services, trade journals, business associations, seminars, educational institutions, advertisements and tenders. There is also a relatively new type of information service, competitive-intelligence firms, which are finding a growing market providing business information and intelligence to SMEs. With the increasing use of computer technologies by information providers, it is relatively easy for people familiar with on-line search techniques to find and process considerably more amounts of information than had hitherto been the case.

The Department of Foreign Affairs and International Trade also provides financial assistance and a number of services that are intended to increase the awareness of Canadian companies about business opportunities in foreign markets and to decrease some of the transactions costs in becoming knowledgeable about these opportunities. DFAIT has developed several general interest and more sector-specific publications on export opportunities in most international markets. There are also a number of on-line information services available to all exporters. Increased emphasis is being placed on services to business and trade commissioners are being trained to react quickly and effectively to information requests from individual companies.

Whatever the source of information, there are at least four approaches used by firms to investigate new market opportunities:

In a 1990 study involving in-depth interviews with senior officers or owners of53 Canadian SMEs,13 the most popular approach to exporting was "entrepreneurial- selective," followed by "haphazard" and "opportunity knocks." The approach most often recommended in academic and public policy literature - rational-comprehensive - was only followed by two of the firms interviewed.

The fact that "entrepreneurial-selective" approach to entering foreign markets was the most popular approach cited in the survey suggests that SMEs involved in foreign markets have frequently pursued these markets on the basis of less than perfect information. This raises the question of the influence of factors such as "gut feeling" and other idiosyncratic factors that prevail despite what the "numbers" might say. This also suggests that there is a point at which the transactions costs involved in collecting and analyzing market information are too high and too time-consuming for a manager to proceed only after all factors have been assessed. It could also suggest that the perceived similarities of the Canadian market with the export market of first choice, the United States, are so close that extensive information gathering and analysis that is US-specific is not warranted. It may also indicate that many Canadian SMEs either decide that they cannot afford a comprehensive market analysis in preparation for exporting or conclude that it does not make sense, from a cost stand-point, to undertake expensive marketing studies in order to enter distant, unfamiliar markets, especially as a first-time exporter.

An encouraging development is the growing number of private companies in Canada that can provide Canadian SMEs with practical information and advice on international business opportunities. For example, Euroventure Consultants (North America) is a professional consulting firm based in Toronto that specializes in international business strategy, trade development and specialized training. Euroventure provides professional consulting services in the areas of: market and feasibility assessments; strategic business planning; organization realignment; international business development; and trade and export development.

CORRUPT PRACTICES IN INTERNATIONAL BUSINESS

Several witnesses before the Committee addressed the issue of bribery as an inhibition to doing business in certain jurisdictions. Some indicated that it was their practice never to bribe anyone, others were less direct. There were some suggestions that ``local agents'' looked after things without too close an enquiry.

The fact of the matter is that there are certain markets where bribery is endemic. In other places a ``facilitating payment'' (a small sum asked by a minor official) may be normal. Such distinctions are not easy to establish or even to justify but American legislation does make a distinction.

As was recently noted in an OECD Report, ``the payment of bribes raised serious moral and political concerns and exacts a heavy economic cost by hindering and distorting international trade and investment.''

Canadian criminal law generally does not extend to acts outside the country but a payment made in Canada to a foreign official might be caught by our Criminal Code. In contrast, the American legislation (particular the Securities Act) does so extend, specifically exempting ``facilitating payments," but concentrating on bribes paid to government officials in order to obtain contracts.

Some cultures see nothing wrong with obtaining government contracts in this manner and this then creates an unlevel playing field for Canadian enterprises, particularly those without experience in the local marketplace. Furthermore, there is concern that if companies engage in corrupt actions abroad, it may extend to their actions here.

The Committee recognizes that it may not be possible for the Canadian government to deal effectively with this issue in isolation. It is very much a matter for international cooperation. Recently there have been several initiatives which merit further action by our government.

The Committee has learned that there are several initiatives in play. Transparency International, a German initiative, is a non-governmental organization that seeks to counter corruption in business at the national as well as the international level. A chapter may be set up in Canada.

The OECD has called in its report mentioned above for an end to tax breaks for companies that pay bribes and for a record of such transactions that should be available on the request of tax authorities.

The Organization of American States (OAS) has recently prepared an Interamerican Convention against corruption. The Committee has been advised that Canada plans to sign it shortly.

Until such time as effective measures are agreed upon internationally and put in place, it is important that the business people be made aware of the Canadian government's position as well as of the local customs and cultures in this matter and prepare themselves by seeking good advice when entering international markets. Private sector consultants and local agents would be the obvious sources to turn to for such advice and guidance.

GOVERNMENT PROGRAMS AND SERVICES

The objective of the DFAIT's international trade development activities is "to contribute to Canada's economic growth by helping Canadian businesses to succeed globally and by encouraging foreign decision-makers to choose Canada as a country with which to do business."14 Activities related to achieving this objective are managed principally through the Department's International Business Development (IBD) Branch.

The IBD Branch is responsible for three main activities:

The IBD Branch is also responsible for the central administration of all DFAIT international business development programs, the coordination of all international business development programming and activities among the federal and provincial governments, the DFAIT and other federal departments and the management of the Trade Commissioner Service (TCS).

DFAIT-sponsored programs and services are delivered by trade commissioners who provide market intelligence and market information services, including:16

In 1995, DFAIT created the Program for International Business Development (PIBD), a financial assistance envelope into which are folded many general and region-specific trade development programs. Included in this envelope is the Program for Export Market Development (PEMD), which was established in 1971 to serve as a risk-sharing partnership with Canadian businesses interested in export markets. The program "encourages a long-term focus on target markets with built-in flexibility to respond to changing market conditions."17 PEMD assistance is focussed on SMEs and is repayable based on incremental sales made by the recipient company or contracts obtained. Grants and contributions under PEMD for 1996-97 are budgeted at $2 million and $9.52 million respectively.

Support for government-sponsored trade fairs and missions

The Committee received many positive responses to the federal government's trade fairs and trade mission activities. SMEs, which emphasized that they must be selective about their choice of export promotion activities, told us that they generally find trade fairs and missions to be valuable and good vehicles for promotion. Holger Peterson of Stony Plain Records said that participation in international trade fairs is his company's "most important marketing tool outside of Canada." He said that participation in trade fairs can be expensive and that assistance in defraying some of the costs is beneficial. Abegweit Seafoods Inc. President Garth Jenkins was equally supportive of this suggestion:

... [our company] has received funding to attend trade shows, trade missions and to receive prospective customers from other countries. This and other assistance, the posts and the Department have provided has enabled us to increase sales, get greater penetration of existing markets and expand into new markets.
Professor Philip Rosson of the Faculty of Administration at Dalhousie University has studied the effectiveness of government-sponsored trade fairs. His analysis suggests the following:

A number of witnesses also explained that the government stamp on trade missions can have a very positive impact on how they are received in foreign countries. This is especially the case in countries where they have little experience and profile and particularly in developing countries, as well as countries where the culture places a high value on official visits. For example, David Killins recounted a story about a business colleague's experience on a trade mission: ". . . [in trying to sell into the Chinese market] the only way he could meet the key officials he needed to contact was to be part of the government's recent Team Canada trade mission to China led by Prime Minister Chrétien." Others, however, found trade missions less useful. After participating in a number of trade missions, Christine Jalilvand found that "they are too long and not focussed well enough." (70:7)

A number of concerns were expressed about the role and representation of SMEs on official trade missions. Several witnesses expressed dismay that they did not always receive the same attention on trade missions as did larger companies. There was also a concern about the manner in which companies are promoted by government in trade missions. Robert Shore, President of Shore Holsteins International Limited, expressed his frustration with how competing bids from Canadian firms are presented during trade missions:

When several competitive Canadian companies are trying to meet with a few potential buyers, this causes confusion among new customers as they are forced to decide not only about whether or not to buy from Canada, but which company to choose.
There was general support among SMEs for the government's decision to focus on a few key international trade fairs and missions and the need for greater private sector input into the selection process.

It was generally agreed that non-flexible eligibility criteria are needed. SMEs typically act on business decisions with less than complete information. As Gordon Sharwood, President of Sharwood and Company, explained, "As a venture capitalist, I don't care as much about business plans and lofty statements. I make many decisions based on sitting down with the entrepreneur, looking into the person's eyes and determining whether I trust his or her judgment."

While SMEs may make decisions based on minimal information, they complain that the application forms for financial assistance generally require more information and documentation than the SMEs themselves use in making decisions. When considering applying for assistance, therefore, SMEs weigh the costs in money and time required to access the funds against the potential benefits of the assistance. Robert Shore summarized well the view held by many SMEs: "The new PEMD only covers half of the airfare, and the cost of our time and effort required to receive this support is not worth it. We will not likely apply to PEMD unless we are participating in a trade show." Mr. Shore also stressed the importance of tailoring the program to the needs of SMEs:

It is important to remember that market opportunities change rapidly. A government policy or change in the foreign exchange rate can immediately create a demand [for a product or service]. Canadian companies must respond in a timely fashion. If government programs such as PEMD are too rigid and require too much future planning, opportunities are lost.

The Trade Commissioner Service

The Trade Commissioner Service (TCS) is generally well regarded, especially for logistic support, initial contacts and general market and country information. Those who have had experience working with different trade commissioners have recognized an unevenness in the level and quality of service. They attribute this both to the level of interest and expertise of individual trade commissioners and to systemic bureaucratic problems. There is a general recognition of the importance of having a government representative in foreign markets to assist individuals and trade missions. This is especially the case for SMEs who typically do not have the resources to establish foreign offices. There is, however, a difference of opinion about the extent to which trade commissioners possess and should possess to provide more specialized information. There is also a sense that the government needs to address the question of expectations regarding what trade commissioners can realistically provide to Canadian firms and what Canadian firms want the government to deliver.

The Committee heard about a number of instances where trade commissioners and Canadian posts abroad played an integral role in helping an SME secure a contract in a foreign country. Robert Shore found trade commissioners to be very helpful for his export promotion efforts:

. . . Their role in problem solving is extremely important. There have been instances where a market would not have been opened or would have been lost if it had not been for the timely and effective assistance from the trade commissioner.
David Killins said that the extent to which trade commissioners can be helpful depends in part on the nature of the industry in which the firm competes and on what is necessary to complete the deal. For example, he said Canadian high-tech companies like his own understand their markets well, especially since they frequently operate on the premise that they need to export to survive. As a result, his experience with trade commissioners thus far has been fairly limited. However, he said a business associate who works in the prefab house manufacturing industry found the trade commissioners in Beijing and Hong Kong "invaluable to him" in trying to sell in the Chinese market.

Other witnesses questioned the capacity of government, because of the way in which it is organized and delivers its services, to provide "actionable" market intelligence. The term "market intelligence" suggests a privileged, strategic advantage of one party over another. At issue is whether it is the proper role of the public sector to provide an advantage for one Canadian company over another. The situation is different when the intelligence is provided to a Canadian SME to win a contract over a foreign bidder. In that situation, privileged information which gives an advantage to the Canadian bidder may be justifiable.

There is also the issue of the level of service that companies can reasonably expect from government. Garth Jenkins said that part of the frustration that companies experience when dealing with trade commissioners is due to unrealistic expectations:

With regard to government's role in international trade, I think the private sector sometimes expects too much from government. They feel they can go to government and go to the posts, and the posts should have. . . information available and be able to give it to us quite readily. For some general information and some historical information, they can. But when it comes to up-to-date market analysis and what is going on in these markets, I think we are asking too much of our government. I don't think the government structure is capable of doing this, and I don't believe they should be doing it.
We use the information we get from the post and from the government as background historical information, and we find our own sources of up-to-date market information. (70:12)
In his research on the effectiveness of the TCS, Professor Philip Rosson of Dalhousie University found that most negative perceptions can be traced back to systemic bureaucratic problems, lack of consensus about what trade commissioners can do and once again, unrealistic expectations. He concludes as follows:

Professor Rosson identified several possibilities for providing higher levels of service to business. These include recruiting, career planning and training initiatives.

Because the salary levels for trade commissioners do not match those in the private sector, DFAIT's pool of potential recruits is largely made up of those for whom salary is not a prime consideration. By freezing what were already lower salaries, however, greater attention has been focussed on this aspect of trade commissioner employment. This is made all the more acute since the very factors that historically have offset lower salaries - the interest and satisfying nature of the work, and the foreign postings - have come under threat with increased workload and fewer postings abroad. To this should be added loss of job security.

A final overriding issue for DFAIT to recognize and deal with is the lower level of morale that has resulted from the accumulation of much recent change. A considerable challenge clearly faces senior management in its efforts to turn around this situation.

APPROPRIATE ROLE FOR GOVERNMENT IN
MARKET INTELLIGENCE SERVICES

There were differences of opinion among the witnesses about the role of trade commissioners, and of government more generally, in the provision of more specialized market intelligence and advice. Jan Fedorwicz of Prospectus Inc., a private market intelligence firm, argued that government and the private sector have different comparative advantages, and therefore have different roles in providing specialized information and advice to Canadian firms:

. . . Governments are best equipped to provide information on rules and regulations, standards and formal procedures. They are also well suited to developing inventories and directories. In the case of trade-related information, the federal government's international network of trade commissioners puts it in a position to offer opportunity identification and help business people in setting up basic contacts abroad. . . The private sector is better equipped to provide subjective advice, evaluations, consulting and training, as well as assistance in partnering and closing the deal.
Jeff Carruthers, a director with Globe Information Services, said that government is not organized and structured to provide companies with the kind of market intelligence they require and the way in which they need it packaged:

Companies need information that makes a difference to their bottom line. We call it `actionable information'. To be `actionable', it must be extracted by someone from the rapidly expanding wave of information that descends minute by minute from all directions; the extracted information must then be put into context; and then it must be `delivered' to the decision-maker's doorstep or, more and more, to the computer desktop.
. . . The federal government does several tasks very well: gather information and analyze it. However, its track record of discerning what Canadian companies really need and then delivering it to them is extremely poor.
Both Fedorwicz and Carruthers suggest the development of clearly delineated roles for government and the private sector in gathering and disseminating market intelligence. From this, they recommend that a mechanism be established to link both services. As Carruthers explained:

. . . What is required is a strategic partnership between government, with its information holdings, and the private sector with its desire to develop new and varied information products that actually meet known and as yet unrealized needs of Canadian companies.
Ron MacSpadyen, Director of Business Development for 11 Corinfo, agrees, but argues that government should also ensure fair competition among private sector service providers:

The provision of market research and competitor intelligence information should be left to the private sector. The role of the government with respect to market research and competitor intelligence should be limited to supporting a fair and equitable referral network encouraging consumer choice.

Capitalizing on Canada's linguistic, multicultural and geographic advantages

In its Report, the Special Joint Committee Reviewing Canadian Foreign Policy devoted a chapter to examining the role of culture in Canada's external relations, and argued that "the projection of Canadian culture and learning abroad should be regarded as a fundamental dimension of Canadian foreign policy."

Just as this Special Joint Committee found that Canadians have yet to understand fully the role of culture in increasing Canada's capacity for effective and independent action in foreign affairs, this Committee was struck by the extent to which Canadian business has yet to capitalize fully on Canada's linguistic, multicultural and geographic advantages. Many witnesses spoke generally about the need for practical information and advice on foreign markets. Only in a few instances, however, did they speak specifically about the need to understand the business culture of different countries.

The Committee has concluded that what is clear is that Canada's multicultural and linguistic diversity is an underexplored resource for Canadian companies that are interested in expanding into international markets.

This requires knowledge of target markets and how to adapt products to those markets. Familiarity with the business practices and mores of those markets and access to local contacts who could assist by introducing products to potential buyers can facilitate penetration of foreign markets. Obviously, knowledge of the local culture and language is also very helpful. Immigrant business people bring with them to Canada this specialized knowledge as well as professional qualifications, business experience and contacts.

The importance of this rich multicultural resource has also been recognized outside of Canada. In an article published in Business Week, Mandell and Farrell, commenting on the situation in the United States, noted that "Immigrant entrepreneurs have also made big contributions to the US export boom. Businesses run by immigrants from Asia, for example, have ready-made connections overseas. Immigrants bring a global perspective and international contacts to insular American businesses."18 In Australia, the government recognizes that the "value of people of different cultural backgrounds can be particularly important in establishing contacts in Asian markets. In addition, skills and abilities of women, as well as people from ethnic backgrounds, are generally under-utilized in management. This represents a significant waste of our intellectual capital."19 An Australian task force report, Enterprising Nation, recommended that government services operated through AusTrade and AusIndustry should "develop specific strategies to use Australia's cultural and linguistic diversity effectively in trade and industry development programs."

In Canada, the link between immigration and export trade has not been explored in any systematic fashion. As Steven Globerman noted in a recent article, there "is virtually no research addressing the potential relationships between immigration and trade."20 Heritage Canada noted the importance of Canada's ethnocultural communities in Multiculturalism Means Business: A Directory of Business Contacts. While referring to these business resources, the authors of the directory noted that as "Canadians recognize, appreciate and learn to work with such resources, this new source of competitive advantage can enhance this country's participation in the global economy." The Standing Committee on Citizenship and Immigration recently confirmed that Canada's immigration program continues to exert a positive influence on the economy and suggested that the government make changes to improve the economic impact of foreign-born individuals.

Committee members are well aware of the contribution to exporting made by Canada's multicultural community. Many Members reflected upon their own experiences with constituents who moved to this country and now run successful businesses which export. They agree with Regina Pierce, Director General of the Baltic Business Council, who noted that the companies showing the greatest interest in emerging markets, are business people who emigrated to Canada from that region. Similarly, Patrick Wong of the Canadian Chinese Business Development Association pointed out that associations like his could assist Canadian companies in their export programs. The Canadian Council for the Americas also has close ties with foreign-born business people who can assist Canadian SMEs with their export projects. Toronto Mayor Barbara Hall pointed out that cities like Toronto, with their cultural diversity and appreciation of international trade, provide important linkages between Canadian SMEs and foreign markets. Mr. Jean Précourt, Chairman and CEO of the Certified General Accountants Association of Canada, stated that:

Another way that small and medium-sized enterprises can enhance their export capability is by tapping into a rich base of international knowledge that can be found within the population of Canadian immigrants. Many Canadian immigrants are skilled professionals and bring with them a wealth of business contacts, knowledge of market distribution systems, language and cultural skills that are required to do business successfully in the export markets. Canadian firms have been slow to develop contact with new Canadians and to tap into their expertise. (68:26)

Canadians who are dual nationals should be made aware that, on reentry into their country of origin, they may be deemed to be citizens of that country and subject to its laws and regulations. In these circumstances, under international law, the Canadian government may not be able to extend all the assistance normally afforded to Canadian citizens abroad. In addition to making available Canadian consular services when they exist in these countries, to holders of Canadian citizenship, the Committee recommends that the federal government continue to use all means at its disposal, including the possibility of suspending bilateral aid measures, to secure the protection of Canadian citizens involved in trade and commercial disputes outside of Canada and, where possible, to conclude consular agreements to this end.

13John A. Chenier and Michael J. Prince, Aid for Small Business Exporting Firms: The role of governments and information networks, (Halifax: Institute for Research on Public Policy, 1990).

14Department of Foreign Affairs and International Trade, 1995-96 Estimates (Part III) Expenditure Plan, (Ottawa: DFAIT, 1995),p. 24-B.

15Ibid.

16DFAIT, 1995-96 Estimates (Part III), p. II-25.

17Department of Foreign Affairs and International Trade, Program for Export Market Development Handbook, (Ottawa: DFAIT, 1995), p. 5.

18Business Week, July 13, 1992, pp. 114-118.

19Winning Enterprises, 1995, p. 80.

20"Immigration and Trade", p. 243 in Don J. DeVoretz, ed., Diminishing Returns.

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