The Globe and Mail

Net key opens global doors--despite opportunity, firms must still cope with problems of trading in real world

By Kevin Marron
November 27, 2000

When Zenon Dragan set up a booth at a local shopping mall three years ago, he discovered that there weren't many buyers in Saskatoon for remote-controlled indoor flying saucers.

So the model-airplane buff quickly decided to set up shop on the Web. And his site has proved to be a launching pad for success in the global marketplace.

"The day we went on the Internet, we started making money," says Mr. Dragan, whose company, Draganfly Innovations Inc., now sells more than $1-million worth of its toy flying saucers annually to buyers in countries including the United States, Britain, Israel and Germany through its Web site (rctoys.com).

But instant international success on-line did not mean a turbulence-free ride.

Mr. Dragan still has faced the real-world problems of manufacturing enough products to satisfy the demand he generated in the virtual world, and delivering them to his customers.

"The business has grown a lot faster than I ever could have dreamed, but there were growing pains," he says.

His experience echoes that of numerous Canadian businesses, large and small, that are using the Internet and e-business to go global.

They are finding the Net is a great enabler and a great equalizer, opening global opportunities that otherwise might be out of reach and allowing firms to spread their wings into almost any market.

A Canadian Federation of Independent Business survey of 11,069 business owners last year found that, of those that were Internet-connected, 52 per cent were selling to markets outside their geographic locations, versus 31 per cent of those not on the Net.

But despite opening global doors, companies are also realizing that e-business is not a panacea and does not overcome all of the issues of trading in the real world.

"It can accelerate the growth of companies and give them a global presence easily, but it doesn't erase the problems of fulfilling orders, shipping, supporting products and keeping consumers satisfied," says Philip Rosson, a professor of marketing at Dalhousie University's School of Business, who recently completed a report for Industry Canada on the role of the Internet in exporting for small and medium-sized enterprises.

In the off-line world, going global is a challenge, at best, and few companies actually succeed, says Ron Babin, a Toronto-based associate partner with Andersen Consulting.

He points to an Andersen survey of 1,000 top U.S. companies between 1992 and 1996 that found those with no international trade showed a net return on capital of 0.27 per cent, while those doing business internationally had a net return of -0.45 per cent.

"The Internet is changing that" because it is so much more cost-effective, cutting spending on marketing, processing and administering sales, and requiring fewer staff to manage customer relations, he says. Nevertheless, he adds, it doesn't do away with the real-world problems that make exporting so challenging and risky.

Although most of Canada's on-line export business -- like most off-line trade -- is currently with the United States, Mr. Rosson says this is likely to change as other countries develop a bigger presence on the Internet within the next year or two.

But going into new markets in Europe and Asia will present Canadian companies with huge new challenges, as they will have to worry about delivering goods over greater distances, communicating in many languages and dealing with each country's laws and conventions, he says.

Large companies with well-recognized and well-respected international brands can use e-business to market their products and manage customer relations on-line. But they still need agents and distribution networks in their target markets to make sure goods are delivered smoothly, Mr. Babin says.

Smaller companies venturing into global markets face greater risk -- and had better learn quickly from their mistakes, Mr. Rosson warns. "Whereas big firms can often sustain two or three very bad decisions, smaller firms can't and their future is on the line."

Mr. Dragan has learned that the hard way. For example, he no longer accepts credit-card orders from Indonesia after being taken for $9,000 worth of flying saucers by fly-by-night fraudsters.

Nor will he put out a news release about a new product before making sure he has enough inventory and cash flow to order more supplies should he be swamped by orders. "There was a time when we were so busy, we couldn't fulfil orders and people were getting upset. I know how to control inventory better now."

For Robert Braun, who created a Web site five years ago for his 72-year-old family business, Braun's Bicycle and Fitness in Waterloo, Ont., the most painful lesson was about shipping costs.

He learned it after he sold heavy bike parts to a customer in Alaska. Assuming he could send the order by surface mail, he discovered that the only way to ship to Alaska was by air cargo -- a mistake that put him out of pocket $130.

Before taking orders, Mr. Braun now turns to Galileo Commerce, a software package designed by Waterloo-based Internet consulting firm Emerge2Digital Inc. This automatically configures shipping, duty, taxes and other costs for sales abroad so he knows what he's getting into before he commits.

Going global and going on-line have forced his 25 employees to learn new skills. Some now have to spend hours every day answering e-mails and others get phone calls from customers around the world.

Mr. Braun also has learned to use the Net to his advantage as a customer. When the current craze for scooters first hit the Net about a year ago, orders from California and other U.S. regions quickly exhausted his inventory. He turned to the Net to find new suppliers.

Small companies are often ambushed by their own success in on-line sales, says Garrett Wasny, owner of HowToConquerTheWorld.com, a Vancouver-based business that offers training in on-line trading techniques.

Going global on the Internet is not just about putting up a Web site, Mr. Wasny says. In fact, he advises clients "not to spend a dime on building a site" until they have investigated the opportunities for selling their products or services in some of the electronic marketplaces now springing up.

Often organized around the supply chain of one or more large companies, these provide an electronic channel for sales that are potentially more lucrative and far more predictable than the hit-and-miss marketing method of creating your own e-commerce site, he says.

"With a click of your mouse, you can get customers and suppliers from all over the world."

Virtual trade missions that use on-line conferencing tools to connect business people from different countries are another excellent tool for gaining access to international markets, says Betty Penny, president of Penny and Associates Inc. of Port Perry, Ont., an accounting and management consulting firm that does 20 per cent of its business in the United States.

Ms. Penny, who recently participated in a virtual trade mission for Canadian and U.S. businesswomen organized by Washington-based Tradebuilders.com Inc., says virtual missions cut the time and expense of business travel and offer some assurance that participants are legitimate and trustworthy.

If you are going to put up a site and sell abroad, Mr. Rosson says the most successful on-line exporters target niche markets; offer superior customer service; provide customers with a range of contact, payment and shipping options; make their sites easy to navigate; and update both technology and content regularly to keep it current and functional.

Mr. Braun says to make sure your site gives accurate information about prices, shipping and service that is relevant to each country where you have customers.

Do these jobs well and the world is, literally, at your fingertips.

"Despite all the hype about the Internet," Mr. Wasny says, "people are still very surprised about how effective it is and its true global reach." Canada leads way in e-business exports, study says Canadian businesses are leading the world in exploiting the potential of on-line international marketplaces, according to a new study by Cambridge, Mass.-based Forrester Research Inc.

The study predicts that, in 2004, e-business will make up a higher percentage of exports from Canada than from any other country.

Forrester analyst Matthew Sanders notes that e-business is streamlining international trade, not only through on-line sales but also by offering companies a cost-effective way of locating international suppliers, tracking the flow of shipments of exported goods and co-ordinating supply chains through global e-marketplaces.

All of these trends will mean that international e-commerce will grow from $44.1-billion (U.S.) this year to $1.4-trillion in 2004, when it will account for 18 per cent of all the world's exports, predicts Mr. Sanders in a report entitled Sizing Global Online Exports that was released this month.

The report projects that Canada's international e-commerce will grow to $98..3-billion in 2004 from $5.7-billion in 2000. At that time, it will represent 29 per cent of the country's total exports.

Mr. Sanders predicts a boom in e-marketplaces next year and says Canada is better placed than any country to take advantage of this.

For example, he says, Canadian trade in crude materials such as paper, pulp and wood will make up more than one-fifth of all world e-marketplace exports of these products in four years -- 10 per cent more than Canada's off-line share of world exports in that sector.

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