This is the first part in our “Guide to Foreign Business Expansion” series tackling the 12 questions every business needs to ask. Download the full guide now.
Expanding requires significant planning, paperwork and, since you’ll be funding an entirely new operation, justification and risk. The process of finding a new location, identifying office space, building a team and maintaining cohesiveness across two or more remote offices takes time and ongoing effort.
You need to have a good reason to expand.
If your business is mature enough to consider expansion, then you’ve probably already noticed the shortcomings of your current location. It might be prohibitively costly. Attracting (or retaining) talent might be a significant challenge. You may desire new perspectives to drive R&D. Your location might make it hard to enter new markets. Ultimately, pursuing an expansion is about finding new competitive advantages that will help your company grow.
The most important question you can ask is: why do I want to expand to a new location?
In Waterloo, we’ve seen all sorts of different reasons for expansion into our community. Here are the four most common ones:
The world has a talent shortage, which is leading to increased competition for top performers. However, there are some places where talent is a) more available, b) more affordable or c) both. In terms of availability, you should consider the relative benefits of “experienced talent” versus a “talent pipeline.” Experienced talent is important for any business and extra important for expansions – when creating a new office your company needs a core of competent, proven professionals. A talent pipeline – a source of lower experience but highly-trained workers – ensures the future viability of your expansion through entry-level recruitment and can help keep salary costs down. Both are important.
Affordability is location dependent. The exact same job, filled by a candidate with the exact same experience and education, can pay far less in some communities than others due to external factors like cost of living. For example, the average software engineer in Waterloo earns far less than a software engineer in San Francisco, but the difference in housing prices and other cost of living metrics means that – in most cases – workers in Waterloo end up ahead.
Access to affordable talent is a common justification for foreign expansion.
We just touched on cost, but savings-based reasons for expansion go far beyond talent alone.
Additional cost advantages you can gain through expansion include:
- Real estate – lease/purchase costs for retail, commercial and industrial space vary greatly between communities
- Location/access to market – these are logistical cost reductions, including lower transportation costs, tariff avoidance, etc.
- Taxation and operational costs – tax regimes vary greatly between jurisdictions. Other costs, like energy or health care, are also relevant considerations
- Research and development – access to R&D expertise and research/innovation-focused tax credits
Cost advantages can significantly improve return on investment and are a common factor in expansion decisions. We’ll go into far more detail later in this series.
There’s a reason that the real estate motto “location, location, location” is so enduring. Location advantages include improved market access, talent attraction/retention and proximity to suppliers and customers. For example, when ESCRYPT Canada, a wholly owned subsidiary of BOSCH, opened in Waterloo our proximity to North America’s largest automotive corridor was a key element in the expansion decision.
“The automotive industry is a primary focus of our business,” said David MacFarlane, former General Manager at ESCRYPT Canada. “In Waterloo, we benefit from both a strong tech culture and proximity to the critical automotive hub in Southern Ontario. The location is ideal to allow us to access auto manufacturers and parts suppliers in Ontario as well as the manufacturers and designers located just down the road in Michigan.”
Expansion can also be about tapping into a local culture and ecosystem that can help your business innovate and grow in new directions. For example, if you are interested in exploring new products using nanotechnology, it is helpful to have specialized research support, expertise and related facilities in close proximity. Likewise, if you are looking to grow your company in an emerging field – like robotics and automation – it makes sense to expand in a place that has a business community with a shared experience. This aligns with cluster theories, which suggest that a concentration of similar types of businesses in one space can help companies within that cluster increase productivity.
The drive to innovate, and the need for support, was behind TD Bank Group’s decision to locate an innovation outpost at the Communitech Hub in Waterloo. “There is a real spirit of business partnerships and camaraderie here, even between larger companies and startups, so it allows you to tap into all kinds of creative thinking,” says Tim Hogarth, VP of Innovation Framework and Strategies for TD Bank Group. “It’s a young town with fresh ideas. In that sense, Waterloo is really a hidden gem.”
Are you looking to expand your business? Do you want to learn more about Waterloo? Contact the Waterloo EDC team! We’re here to help.