International Issues in Business
BUSI 4703
Final Paper: Trendy Tile Exportation Analysis of Canada
December 17, 2002
Prepared by: Group Six
Rachel Daugherty, Roxanne Hutson, Lisa Payne,
Karen Smith and Shawn Sollars
TABLE OF CONTENTS
Executive Summary ....................................................................................................................... 1
Introduction .................................................................................................................................... 3
Trendy Tile Overview .................................................................................................................... 3
Sociocultural Forces....................................................................................................................... 4
Sociological Forces ........................................................................................................................ 6
Available Resources....................................................................................................................... 8
Economic Forces .......................................................................................................................... 10
Financial Forces ........................................................................................................................... 11
Physical and Environmental Forces ............................................................................................. 13
Competitive and Distributive Forces ........................................................................................... 16
Legal Forces ................................................................................................................................. 19
Pricing .......................................................................................................................................... 25
Conclusion ................................................................................................................................... 26
References .................................................................................................................................... 27
Appendix ...................................................................................................................................... 29
EXECUTIVE SUMMARY
Today’s business managers must constantly explore new markets, both domestically and
internationally. Global competition is increasing rapidly thanks to such factors as the Internet and
new regulations designed to reduce foreign trade barriers. According to statistics, U.S. total trade
reached a record $2.18 trillion in 1999 as more than 231,000 U.S. firms exported goods and
services. Of those, over 223,000 were small businesses. (U.S. Business Advisor)
In order to expand sales and increase profits, the management of Trendy Tile, a small
decorative tile manufacturer, has decided to export its products. Extensive research was first
performed to determine which countries would make the best trading partners and why. Financial
and economic forces, political and legal regulations, physical and environmental considerations,
sociocultural values, and possible competitors were analyzed and evaluated. Upon completion of
this basic analysis, Canada was selected as the most advantageous importer of Trendy Tile’s
goods.
There are a number of reasons management chose Canada as the primary foreign market
in which to expand. First, Canada is a major trading partner to the United States. NAFTA
regulations have made trading with Canada easier and more economical than ever before. In
addition, its close proximity to the U.S. means lower freight costs, shorter delivery times, and
reduced expenses for both the buyer and seller. Second, the cultural and economic factors
between the United States and Canada are similar. Canada's comparable standard of living and
level of income provide a potentially strong market for Trendy Tile’s products.
Once the decision to export to Canada was made, Trendy Tile management then
discussed whether to export directly or indirectly. The four basic approaches analyzed were:
•
passively filling orders from domestic buyers who then export the product
1
•
seeking out domestic buyers who represent foreign end users or customers
•
exporting indirectly through intermediaries
•
exporting directly
After carefully weighing the pros and cons of each method, management decided to export
directly to foreign retailers and customers. This offers the advantages of providing more control
over the export process, potentially higher profits, and a closer relationship to the Canadian
marketplace. The best method of distribution was then selected and a comprehensive business
plan was developed. The following analysis contains pertinent information regarding Canada’s
current business environment and how Trendy Tile expects to achieve success in its exportation
efforts.
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INTRODUCTION
There are many reasons Trendy Tile’s business managers decided to enter foreign
markets to expand sales and increase profits. Increased global competition, relaxed government
restrictions, and improvements in information technology are strong incentives for any business
to develop foreign trade programs. Statistics show the number of American businesses exporting
their goods and services “has tripled since 1990, with a full two-thirds of that boom coming from
companies with fewer than 20 employees.” (Explore Exporting) Clearly, it is becoming a
necessity for most businesses to export their goods and services.
Once the decision was made to export Trendy Tile products, management then
determined which country would provide the best market. Because Trendy Tile produces
custom-made decorative tiles for homebuilders and remodelers, a country’s economic strength
and the quality of life of its citizens were the first factors taken into consideration. A relatively
affluent society with disposable income to spend on decorative home items would provide the
best market potential. Other aspects management reviewed included: sociological values,
physical and environmental conditions, legal regulations, competitive and distributive forces, and
transportation. Upon completion of their examination, management chose Canada as the ideal
trading partner. The following analysis provides the facts, findings, and figures used to determine
the advantages Canada offers.
TRENDY TILE OVERVIEW
Trendy Tile offers custom-painted individual tiles and large wall murals for new
homebuilders, interior decorators, renovators, and do-it-yourselfers. The company enjoys a
strong market in the United States for several reasons. First, customers can buy tiles in the colors
and patterns they want. Trendy Tile products are creative and unique so customers can have a
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one-of-a-kind decorative accessory just right for their home. Second, ordering is easy and
convenient. Customers can order online, by telephone, or through retail outlets such as Home
Depot or Lowe’s that carry Trendy Tile products. Third, prices are competitive with regular mass
produced tiles because of Trendy Tile’s low overhead and production costs. Fourth, statistics
indicate that home remodeling projects, particularly kitchen and bathroom remodeling, are on the
increase and ceramic tiles are used most often in these two rooms.
Trendy Tile currently employs five on-staff artists to paint tiles to the customers’
specifications. The company has also teamed with several internationally renowned artists to
provide their works on tiles through a special decal application process. Patricia Romance and
Robert Bateman are two popular Canadian artists who have agreed to license their images to
Trendy Tile. Royalties are paid to these artists for the use of their images.
A manager with international business experience has been hired to oversee the new
exportation program. She operates from an office in New York and stays in constant contact with
Trendy Tile’s main office in Nacogdoches by phone, fax, and Internet. She is responsible for all
aspects of customer service, sales, and shipping for the Canada operation. She is paid a base
salary plus commissions on all sales to new customers in Canada.
SOCIOCULTURAL FORCES
Cultural Values
A country’s culture affects all business functions and successful exporters must
thoroughly understand the cultural differences of the countries with which they do business. Of
the various sociocultural components (i.e. religion, attitudes and beliefs, education, etc.), Trendy
Tile management was most concerned with Canada’s aesthetic values. A country’s sense of
beauty, art, and good taste can vary dramatically from region to region. Because Trendy Tile is
4
in the decorative tile business, it was imperative to carefully evaluate the styles, colors, and
designs Canadians would find most attractive to help insure product marketability.
Although approaches used by firms in the United States can be effective in the Canadian
market, it is important not to assume that selling in Canada is the same as selling in the U.S.
market. It has been said that a good portion of Canadian culture lies in its effort to distinguish
itself culturally from the U.S. Although the two countries share characteristics of a common
cultural heritage, there is without a doubt a separately identifiable “Canadian culture.”
Canada has a vibrant culture, rich in diversity and range of activity. “One of the unique
aspects of Canadian life is the dual influence of Anglo and French cultures within the same
country. In addition to the political challenges of having a French province within an Englishspeaking nation, it is interesting to have two such diverse cultures share one country.” (Profiles
in Culture) This dual influence can be seen in the country’s language, music, and art.
Canadians value egalitarianism and a sense of community. This is evident from a number
of social programs provided to all citizens such as national health care. Canadians tend to be
more group-oriented than either Americans or the British, but choose careers and homes, for
example, based on the individual’s rather than the groups’ needs. They are a more informal
people and most enjoy a more unhurried lifestyle compared to their U.S. neighbors. “This stems
from their concern for the quality of life and the fact they are less driven by a need to achieve.”
(Profiles in Culture) French Canadians, due in part to their Latin roots, are more focused on
quality of life than are their English Canadian counterparts. Although French Canadians place
less importance on time and deadlines, there is greater importance placed on a person's social
status.
5
Canadian Housing Market
The Canadian housing market is similar to the U.S. market. Home building and
remodeling have greatly increased over the last year due to low interest rates and sustained
economic growth. Single-family homes make up the largest market segment, although Canada
also has abundant rental properties such as apartments and duplexes. Housing styles are also
comparable to houses in the United States. Most homes in Canada have brick or wood siding
exteriors, but log homes and modular styles are also available. This information suggests a solid
market potential for Trendy Tile products. Additional homeowner demographics are supplied in
Appendix A.
SOCIOLOGICAL FORCES
Various socioeconomic dimensions were evaluated to determine the market potential of
Canada. The total population, age distribution, population density and population distribution
were all reviewed. Total population analysis was used to provide a general indicator of the
overall potential market size. Age and gender distribution information identified the population
segment most likely to buy Trendy Tile’s goods. Population density and population distribution
figures showed where sales should be concentrated to be most effective.
Composition
Canada is a federation of 10 provinces—Newfoundland, Nova Scotia, New Brunswick,
Prince Edward Island, Quebec, Ontario, Manitoba, Saskatchewan, Alberta, and British
Columbia—and three territories—Nunavut, the Northwest Territories, and the Yukon Territory.
Canada's capital is Ottawa but its largest city is Toronto. Other important cities include Montreal,
Vancouver, Edmonton, Calgary, Winnipeg, Hamilton, and Quebec.
The following is a general overview of Canada (source: www.State.gov -The US
6
Department of State – Canada):
TYPE OF CONSTITUTION:
Confederation with parliamentary democracy
CAPITAL:
Ottawa
PRINCIPAL GOVERNMENT
OFFICIALS:
Head of State: Queen Elizabeth II (since 1952)
Governor General: Adrienne Clarkson
Prime Minister: Jean Chretien
Minister of Foreign Affairs: Lloyd Axworthy
Ambassador to the U.S.: Michael Kergin
Ambassador to the United Nations: Paul Heinbecker
GEOGRAPHY:
Northern North America, bordering the North
Atlantic Ocean on the east, North Pacific Ocean on
the west, and the Arctic Ocean on the north, north
of the conterminous United States
CLIMATE:
Varies from temperate in the south to sub-arctic and
arctic in the north
POPULATION:
31,902,268 (July 2002 est.)
AGE STRUCTURE:
0 – 14 years
19%
(male 3,067,102; female 2,918,839)
15 – 64 years
68%
(male 10,846,151; female 10,725,800)
65 +
years
13%
(male 1,715,071; female 2,319,842)
ETHNICITY:
British origin
French origin
Other European 1
Amerindian
Other (Asian, African, Arab)
Mixed background
28%
23%
5%
2%
6%
26%
RELIGION:
Roman Catholic
Protestant
Other
46%
36%
18%
LANGUAGES:
English
59.3%
French
23.2%
Other
17.5%
Canada is officially bilingual; French, which is
spoken primarily in Quebec and New Brunswick,
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and English are the two official languages
EDUCATION:
99% of the population aged 15 and over have at
least a ninth-grade education
NATURAL RESOURCES:
Iron ore, nickel, zinc, copper, gold, lead,
molybdenum, potash, silver, fish, timber, wildlife,
coal, petroleum, natural gas, hydropower
Motor vehicles and parts, industrial machinery,
aircraft, telecommunications equipment; chemicals,
plastics, fertilizers; wood, pulp, timber, crude
petroleum, natural gas, electricity, aluminum
Canada is the world’s 5th largest producer of energy
EXPORTS:
EXPORT PARTNERS:
U.S.
86%
Japan
3%
Other
11%
(UK, Germany, South Korea, Netherlands, and
China)
IMPORTS:
Machinery and equipment, motor vehicles and
parts, crude oil, chemicals, electricity, durable
consumer goods
IMPORT PARTNERS:
U.S.
EU
Japan
74%
9%
3%
Target Market
Trendy Tile has defined its target customers as women between the ages of 25 and 65 that
have an average to above-average income. According to the World Fact Book there are slightly
less than 11,000,000 women between the ages of 15 and 64 in Canada. Now, can they afford to
buy? Relatively low poverty and unemployment rates are two indicators that the country’s
economy is doing well and that our target market will be able to afford decorative tile. But, will
they want to buy? Is there a demand for our product? A recent article in DSN Retailing Today
stated that Canada currently has a $5 billion home décor market, and in the last four years it has
experienced astounding double-digit growth.
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AVAILABLE RESOURCES
Canada is the world’s second largest country in terms of land area, but has a very low
population density. It is a modern and technologically advanced country as well as energy
sufficient. Canada is one of the few developed countries that relies heavily on its own abundance
of natural resources.
Natural Resources
Canada is rich in raw materials and is a leading mineral producer, although much of its
mineral resources are difficult to reach due to permafrost. It is the world's largest source of
nickel, zinc, and uranium, and a major source of lead, asbestos, gypsum, potash, tantalum, and
cobalt. Other important mineral resources are petroleum, natural gas, copper, gold, iron ore, coal,
silver, molybdenum, and sulphur.
Communication Networks
Telecommunication networks in Canada are comparable with those of the U.S. and all
forms of communication and transmission are available including voice, text, data, and video. In
2001, 14.44 million Canadians used one of 760 Internet Service Providers to log onto the World
Wide Web. Canada also uses the U.S. direct-dial long distance telephone system (dial one, the
area code and then number).
Infrastructure
As with technology, Canada’s transportation system is also comparable to that of the
U.S., excluding remote northern areas of Canada. A massive air network of 1,419 airports and 18
heliports connects all major and many minor traffic points to the rest of the world. Canada also
has 36,114 km of railways, with two major transcontinental freight railway systems: Canadian
National, which was privatized in November 1995, and Canadian Pacific Railway, with
9
passenger service that is provided by the government. Various ports and harbors are located in
Quebec, Montreal, and Toronto. A good highway system supports extensive truck, bus, and
automobile traffic. Canadian highways total 901,902 km with paved roads accounting for
318,371 km, 16,571 km of those are expressways. Despite the fact that all major cities have a
public transit system, Canada remains as much of an “automobile society” as does the U.S.
ECONOMIC FORCES
Canada’s population is roughly one tenth of the U.S. population and the Canadian
economy reflects the U.S. economy in just about the same ratio. In many ways, the two countries
have developed along similar lines. American companies looking for a familiar environment and
marketplace view Canada as the ideal export and investment destination. U.S.–Canada relations
are perhaps the closest and most extensive in the world. This is reflected in the staggering
volume of trade--over $1.4 billion a day--between the two countries.
Economy
Canada is a high-tech industrial country closely resembling the United States. Both
countries have a market-oriented economic system and a high living standard. Before World War
II, Canada had a largely rural economy. The service sectors have changed the country into
primarily industrial and urban. Since 1993 their real rate of growth has averaged nearly 3%,
unemployment is falling, and the government budget surplus is being used to reduce the public
sector debt, which was $1.9 billion in 2000. There has been a significant increase in trade and
economic integration with the United States since the 1989 U.S.-Canada Free Trade Agreement
(FTA) and the 1994 North American Free Trade Agreement (NAFTA). The country enjoys solid
economic prospects because of its great natural resources, skilled labor force, and modern capital
plants. There is one downfall for Canada due to the number of citizens moving south because of
10
higher pay and lower taxes.
While the GDP in Canada was $774.7 billion in 2000, the real growth rate was 4.3%. The
GDP per capita, purchasing power parity, was $24,800. Agriculture makes up 3% of the GDP,
while industry is 31%, and services are 66%. Canada’s inflation rate is at an all time low now at
2.3%, down from 2.6% in August. A drop in energy prices, down 25.8%, and a drop in mortgage
interest costs, down 3.3%, has contributed to the decline. The Bank of Canada keeps a close eye
on the measure of core inflation as well as mortgage rates. They have raised interest rates three
times this year to keep inflation down and have established a 1-3% target for inflation.
Industry
Canada’s manufacturing, mining, and service sections have helped create an affluent
society. Services account for 66% of the GDP, while industry accounts for 31%. Manufacturing
is Canada’s single most important economic activity; tourism and financial services represent the
largest segments of the service industry. The country’s rich energy resources, including
hydroelectric power, petroleum, natural gas, coal, and uranium, amply support Canada’s
industry.
Although agriculture contributes only approximately 3% to the GDP, the country is one
of the world’s leading agricultural exporters, especially of wheat. Livestock and dairy products
are the largest sources of farm income. Apples and peaches are the main fruits grown in various
parts of Canada. Forests cover more than half of the total land area, ranking Canadian timber
production among the highest in the world. Fishing is another important economic activity with
about 75% of the take exported.
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FINANCIAL FORCES
Currency
The currency in Canada is the Canadian dollar. The exchange rate between Canada and
the United States has ranged between 1.15211 and 1.602 this year (see Graph 1 below). The
fluctuation of the rate of exchange can increase the company’s revenue or increase the
company’s expenditures. As the exchange rate increases, it costs more Canadian dollars to
purchase U.S. dollars. This may cause difficulty in forecasting company expenditures.
EXCHANGE RATE
Graph 1
Employment
Ja
n02
M
ar
-0
2
M
ay
-0
2
Ju
l-0
2
Se
p02
N
ov
-0
2
1.7
1.65
1.6
1.55
1.5
1.45
The unemployment rate during the last ten years has ranged from 10.5% in 1993 to 6.8%
in 2000. The unemployment rate for November 2002 was 7.5%, which though a little higher than
the lowest 6.8%, is still substantially lower than 10.5%. Graph 2 below shows employment trends
for the last 5 years.
Graph 2
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Exports
The country exports $272.3 billion each year with 86% going to the United States and 3%
to Japan. The other 11% is fairly equally divided between Germany, South Korea, and China.
Canada’s import partners are the United States at 76%, Japan 3%, and Germany, France,
Mexico, Taiwan, and South Korea make up the rest. Imports into the country are approximately
$238.2 billion annually.
A major problem for Canada is that foreign countries, particularly the United States,
control significant amounts of its economy. This occurs most notably in the manufacturing,
petroleum, and mining industries, which makes Canada vulnerable to the economic downswings
of its trading partners. The situation, however, is somewhat stabilized by the fact that Canada
also is a large foreign investor, and its investments in U.S. cities have increased dramatically in
recent years.
PHYSICAL AND ENVIRONMENTAL FORCES
The physical and environmental factors of Canada will contribute to Trendy Tile’s export
success. First, the close geographical proximity of Canada is a significant advantage.
Additionally, three of the country’s largest cities with the greatest purchasing population-Toronto, Montreal, and Ottawa--sit on the Canadian-U.S. border. Therefore, transporting goods
to these cities is relatively easy and economical. Second, the climate of Canada can be beneficial
to Trendy Tile’s custom products. The cold climate of their long winter season means people
spend more time indoors, surrounded by the comfort and beauty of their homes.
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Source: www.cia.gov/cia/publications/factbook/geos/ic.html
Topography
Canada is located in the northern part of North America, bordered by the North Atlantic
Ocean on the east, North Pacific Ocean on the west, and the Arctic Ocean on the north. It has a
total mass of 9,976,140 sq km, of which 9,220,970 sq km is land, and 755,170 sq km is water.
The terrain is mostly plains with mountains in the west and lowlands in the southeast. The
country is slightly larger than the U.S. with a climate that varies from temperate in the South to
sub-arctic and arctic in the Northern part. Most of the country’s rain and snow is east of the
mountains. Continuous permafrost in the north is a serious obstacle for development. Cyclonic
storms occur regularly east of the Rocky Mountains.
Population Concentration
Canada is the second largest country in the world, second to Russia. Eighty-five percent
of the population is located near the U.S. border. Current population estimates were 31,902,268
as of July 2002, with a population growth rate of .96%. The age expectancy is 79.69 years.
14
Chart 3
Population Chart
Age
0-14
15-64
65 and up
Percentage
18.7
68.4
12.9
Male
3,067,102
10,846,151
1,715,071
Female
2,718,839
10,725,800
2,319,842
Environmental Concerns
Canada’s current environmental issues are air pollution and acid rain, both of which have
a negative affect on the country’s lakes and forests. Metal smelting plants, coal-burning utility
companies, and vehicle emissions impact agricultural and forest productivity as well. Ocean
waters are also becoming contaminated due to the agricultural, industrial, mining, and forestry
activities today.
Climate
Shipping tile to Canada could be difficult at times depending on weather conditions and
the area to which products are shipping. Fortunately, the country’s snow removal equipment
eliminates driving hazards in all but the worst blizzard conditions. Canada only has a few months
out of the year where the weather is sunny and warm. Fall, winter, and spring are cold, wet, and
covered in snow a large part of the time. Annual average snow amounts and rain days for three
cities are listed in the chart below.
City
Snow Fall cm
Wet days
Quebec City
337.0
178
Montreal
214.2
162
Toronto
135.0
139
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COMPETITIVE AND DISTRIBUTIVE FORCES
Competition
Although there are many tile companies in Canada, few sell custom-decorated tile.
Trendy Tile’s products are decorative, functional, and unique and can be used to enhance the
look of any room in the house. A bathroom, kitchen, garden, or even around a fireplace would be
excellent places for a custom mural. Trendy Tile’s collaboration with famous current artists, such
as Canada’s Robert Bateman and Patricia Romance, also set the company apart from the
competition.
Advertising and Promotion
The advertisement and promotion of any product is essential to its success. Trendy Tile
wishes to actively advertise and promote its tile to its target customers. The largest percentage of
net ad revenues in Canada represents television ads, followed by magazines and newspapers.
There are over 450 advertising agencies in Canada and advertising rates are generally
comparable to those in the U.S.
In 1997 there were 21.5 million televisions in use, and 74% of all households subscribed
to one of the 2,071 cable systems. Trendy Tile plans on running a television ad campaign
initially to gain product awareness.
There are presently more than 110 daily newspapers published in Canada, 85% of which
are in English, 10% French, and the remaining 5% are published in other languages. Canada has
two daily national newspapers with substantial business sections: The Globe and Mail (Monday
– Friday: 320,000), and The National Post (Monday – Friday: 329,000). The Toronto Star
(Monday – Friday: 470,000) is also worth mentioning.
Trade magazines are sent free to specific audiences and cover almost every major
16
industry in Canada. Trade magazines on home improvement and remodeling would be excellent
places for Trendy Tile’s ads. In 2000, the top five general interest Canadian magazines were:
Readers Digest (monthly circulation 1,138,000), Chatelaine (monthly: 794,000), TV Guide
(weekly: 706,000), Macleans’s (weekly: 503,000), and Time Canada (weekly: 320,000).
Although the majority of Canadians speak English, the French-speaking areas,
concentrated in Quebec province, should be considered a distinct market. Advertisements
directed toward this market should be specifically tailored to Quebec because of its very unique
cultural identity. It’s consumer tastes, preferences, and styles differ from the rest of Canada. It is
for this reason that Trendy Tile will not initially seek out consumers in Quebec.
Packaging and Labeling
The majority of consumer goods sold in Canada are required to have bilingual labeling
(English and French). Under the federal Consumer Packaging and Labeling Act, the following
information must appear on the package/label of a consumer good sold in Canada:
Product Identity Declaration:
describes a product’s common or generic name, or its
function. The declaration must be in both English and
French.
Net Quantity Declaration:
should be expressed in metric units of volume when the
product is a liquid or a gas, or is viscous; or in metric units
of weight when the product is solid or by numerical count.
Net quantity may be expressed in other established trade
terms.
Dealer’s Name and
where the prepackaged product was manufactured or
Principal Place of Business:
produced for resale. In general, a name and address
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sufficient for postal delivery is acceptable. This
information can be in either English or French.
Canada Customs and Revenue Agency, the agency responsible for inspection of imports,
also requires an indication of the country of origin, such as “Made in the USA,” on several
classes of imported goods. Goods not properly marked cannot be released from Canada Customs.
The Province of Quebec requires that all products sold in that province are labeled in
French and that the use of French be given equal prominence with other languages on any
packages or containers. The Charter of the French Language requires the use of French on
product labeling, warranty certificates, directions for use, public signs and written advertising.
Products labeled “environmentally-friendly” must be accurately labeled in compliance
with relevant legislation. Environmental claims that are misleading or irrelevant, or that cannot
be substantiated, should not be used. In all cases, environmental claims should clearly state
whether they are referring to the product itself or to the product’s packaging materials.
Shipping
Transporting and shipping requirements vary in method, cost, and delivery time when
exporting goods to other countries. Many companies who first begin exporting decide to use
intermediaries such as buying agents or export management companies to handle the necessary
requirements and documentation. Trendy Tile management has decided to export directly to its
Canadian customers, whether they are individuals buying from the website or retail chains
located in Canada such as Home Depot, The Bay, or The Building Box, with the help of a
customs broker.
“A customs broker is an individual or company that is licensed to transact customs
business on behalf of others. Customs business is limited to those activities involving
18
transactions related to the entry and admissibility of merchandise; its classification and valuation;
the payment of duties, taxes, or other charges assessed or collected; or the refund, rebate, or
drawback thereof.” (A Basic Guide to Exporting) Customers buying Trendy Tile’s products will
pay for the merchandise plus shipping and handling charges. These fees will vary with the
amount purchased, weight of the goods, and the transportation distance.
Federal Express was chosen as the primary delivery method to individual customers
buying small quantities of goods. SNL Transportation of Tyler was selected to ship to the stores.
Trendy Tile developed an agreement with a local company to transport our products via SNL
Transportation among their three shipments to Canada each week. Cost estimates of $3000 a trip
to transport tile products alone versus $500 a trip to ship with the other company’s products was
the deciding factor.
Payment Terms
Two payment options will be provided to our Canadian customers: credit card or letter of
credit. Both payment plans insure Trendy Tile receives payment for the goods. A letter of credit
must be confirmed and irrevocable. The L/C is a confirmed document issued by the buyer’s
bank, which says they promise to pay Trendy Tile a specified amount when the bank has
received certain documents stipulated in the letter of credit by a specified time. Once a letter of
credit has been received from the customer that is irrevocable, the customer can’t alter or cancel
it without consent.
LEGAL FORCES
Government
Canada operates on a federal government system, where the powers and responsibilities
are divided between the federal government and the ten Canadian provincial governments.
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Parliament and the prime minister, both headquartered in Ottawa, make up the federal
government.
Queen Elizabeth II is Canada’s official head of state, although the Governor General
represents her at the federal level and the Lieutenant Governors represent her at the provincial
level. The Governor General is appointed by the Queen on the advice of the Prime Minister. The
Prime Minister is the head of Canadian government and is usually the leader of the political party
that has the greatest number of seats in the House of Commons.
Parliament is comprised of the House of Commons, the Senate and the Governor
General. The House of Commons is the national legislature elected by its citizens and made up
of 301 members. The Governor General, upon recommendation by the Prime Minister, appoints
Senate members. The Senate is responsible for considering parliamentary legislation as well as
investigating important social and economic issues. The House of Commons, the Senate, and the
Governor General must approve all legislation before it becomes law. Federal and provincial
elections are held at least every five years. All voting is done by secret ballot and voters must be
a minimum of 18 years old. The majority of Canadians vote regularly in elections.
Judicial System
The Canadian legal system is based on English common law, except in Quebec where
their civil law system is based on French law. Canada’s judicial system has numerous levels of
courts including federal and superior courts, county courts, provincial courts, family courts,
juvenile courts, and small-claims courts. The Supreme Court of Canada is the highest court in the
country, responsible for interpreting constitutional matters and defining the limits of federal and
provincial powers. Nine Supreme Court justices, three of whom are always from Quebec, preside
over the Court. As in the United States, there are two forms of law: civil and criminal.
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National Legal Forces
The specific national legal forces for exportation purposes include taxation, antitrust
laws, trade obstacles, and product liability. All of these forces involve a multitude of complicated
ideas and information that are strongly influenced by economic and political pressures. These
legal forces are very important in raising revenue for the government, enforcing contracts, and
protecting the rights of businesses and employees.
Taxation
Besides raising revenues for the government, taxation also serves many other purposes.
One of these is to either encourage or discourage purchases of certain items. For example,
domestic item purchases are encouraged while imported items from countries outside the
NAFTA treaty are taxed more heavily. “Sin” items such as cigarettes are another example of
items that are discouraged. In Canada, the tax rate is 8.6 cents per cigarette, tobacco stick or
gram of cut tobacco and 56.6% of the retail price of cigars.
Canada relies on direct and indirect taxes to generate income. The direct tax used is the
income tax. Canadians as well as citizens of the United States regularly argue in favor of a flat
tax rate instead of a tiered system. In Canada, there is a federal income tax as well as a separate
income tax levied by the provinces. Ontario has the sixth highest income tax rate in Canada. The
top combined federal and Ontario tax rate is 46.41%. See Appendix D for 2002 personal income
rates for Canada.
United States citizens pay sales tax on taxable purchases, but Canadians have up to four
sales taxes. The Goods and Service Tax (GST) is 7% of the merchandise value and is charged
throughout the country. Certain provinces collect a Provincial Sales Tax (PST) which is 8%.
New Brunswick, Nova Scotia, Newfoundland, and Labrador also tack on a Harmonized Sales
21
Tax (HST) of 5% to the price of the merchandise and the tax already charged. In Quebec, a
Quebec Sales Tax (QST) is charged at 8%. These amounts will be charged to each customer, but
when tax returns are filed, Trendy Tile will be able to deduct any GST, HST, and QST paid from
what was collected. The net amount is payable to the government on a monthly basis. There will
be a GST tax charged on the value of exports; this will be charged to the company through a
brokerage company called Livingston. These amounts may also be deducted from the tax returns
prepared monthly.
Corporate Tax Rates
Canada has three basic corporate tax rates for corporations: general, manufacturing and
processing (M&P), and small business. The tax rates vary considerably. In 2002, general
corporations were taxed at 38.6%, M&Ps were taxed at 33.1%, and small businesses were taxed
at 19.1%. Canada is in the process of decreasing tax rates to encourage domestic business. Taxes
in Canada seem high at the general level, but it is important to remember that corporations must
pay federal and provincial taxes.
Chart 4
Combined Federal/Ontario Corporate Tax Rates
Antitrust Laws
22
The U.S. is well known for attempting to enforce its antitrust laws worldwide. This is
known as extra-territorial application. Many countries find this invasion offensive. The discovery
process also leads to many complaints. Because of differences in antitrust laws and the need for
international protection, the U.S has proposed a global antitrust treaty.
Canada protects itself from antitrust crimes though the Competition Bureau. The
Competition Bureau bases the administration and enforcement of the Competition Acts on five
principles: confidentiality, fairness, predictability, timeliness, and transparency. The Competition
Bureau uses several methods to maintain and promote competition in the market. In addition, the
bureau does what is necessary to deal with anticompetitive behavior. A company can request an
Advisory Opinion for a fee. This will let the business know if a proposed action is allowed under
the Competition Acts. In an Alternative Case Resolution, a company under investigation is
allowed to make changes to bring them into conformity with the law. Court proceedings are the
next step in preventing antitrust activities. The court time results in judgments, court orders,
discontinuances, and/or penalties.
Trade Obstacles
The North American Free Trade Agreement (NAFTA) has led to duty-free commerce
between Canada, Mexico, and the United States. Citizens of these countries do not have to pay
duties on items manufactured in these countries. Caution is needed when purchasing items from
these countries because duties apply to items made in countries outside the NAFTA agreement
even if the product was purchased in one of the three member nations. Even with NAFTA, there
are still barriers to trade such as currency exchange and customs brokers fees. When shipping a
package through Canadian Customs, a $5.00 processing fee is automatically assessed if Canada
Post is used. Some fees are even higher. Canadian Internet customers need to be aware of added
23
charges in shipping and customs when they are purchasing from the U.S. and Mexico.
Product Liability
In the 1960’s, Product Liability became an important issue in the courts of the United
States. Product Liability is the responsibility of the manufacturer and/or seller when a product is
found to be defective. Companies can be sued for defective products and directors imprisoned or
made to pay punitive damages.
Unfortunately, there is no consensus in Canada as to how to deal with product liability.
As recently as 1980, Canada did not have specific, standardized product liability laws. “Product
Liability” did not even have a precise legal definition. Canadian law simply offered contract and
warranty protection. Sale of Goods legislation was the primary governance of the product
liability issue. Consumers were allowed to file a tort case or complain that a contractual
obligation was broken, but not much else.
Recently, New Brunswick, Saskatchewan, and Quebec have begun passing laws about
product liability. The changes in the laws affect allow for wider consumer protection,
recoverable losses, and responsibility. New Brunswick has also allowed strict liability in tort
cases to protect consumers from products that are “unreasonably dangerous”. Ontario has its
own set of laws regarding product liability. The Ontario Law Reform Commission makes
recommendations for laws protecting consumers regardless of contractual relationships and
encourages the imposition of strict liability.
The Madrid Agreement of 1891 and the General American Convention for Trademark
and Commercial Protection for the Western Hemisphere are treaties that protect the trade mark
of a company. The Industrial Property Convention protects trade names. Trendy Tile will rely on
these treaties and the good relations between Canada and the United States to protect our name
24
and brands.
All of the artists that design for Trendy Tile will have copyright protection on their work,
either through Trendy Tile or through their own studios. The Berne Convention of 1886 and the
Universal Copyright convention of 1954 offer protection internationally for copyrighted
material. The countries honoring trademarks, trade names, and copyrights will seize illegally
produced reproductions to prevent the breaking of these laws.
PRICING
Trendy is able to maintain low weekly expenses: 250 tiles cost $45, the electricity to fire
the kilns costs $10, and the paint costs less than $10. Five in-house artists are paid hourly wages
ranging from $10 to $15. The professional artists who have agreed to license their works to
Trendy Tile will receive monthly royalty payments; this amount will vary from artist to artist and
month to month.
Hand-painted mural art tile sells for about $5 per four-inch tile. Prices can go as high as
$25 per four-inch tile depending on the material of the tile (i.e. terra cotta, slate, ceramic, or
marble). Murals created from the professional artists’ works range from $350 to $2000
depending on the artist, size of mural, and tile material. Trendy Tile’s prices for single ceramic
tiles are as follows:
2” tile - $3 each
3” tile - $5 each
4” tile - $10 each
6” tile - $25 each
House Numbers (3-5 tiles) =$25-$65 per set
25
CONCLUSION
Developing an export plan can be a daunting task, but it is an important first step if a
company expects to be successful in exporting its goods or services. The purpose of the plan is to
provide management with facts, figures, and goals so that a plan of action can be implemented.
Specific objectives, timelines, and evaluation measures must be included in the plan.
This report represents management’s initial evaluation of Canada as a new market for
Trendy Tile’s products. An analysis of the country’s various forces, values, and resources
indicate a strong potential for expanded sales and increased profits. The similarities between
Canadian and American consumers are noted in their housing and decorative preferences and
their income levels and living standards. These facts, along with a lack of competition, suggest
an outstanding market niche for Trendy Tile’s products.
The new business manager in charge of exporting will direct the operation from a New
York office. This has the added advantage of saving time and travel expenses when making sales
calls in Canada. Additional assistance, if necessary, can be provided by several government
organizations at little or no cost. The U.S. Department of Commerce’s Trade Information Center
is an excellent source of information and assistance. The Small Business Administration also
provides invaluable support for small businesses, such as Trendy Tile, wanting to develop
successful exporting operations.
With careful planning, organization, and perseverance, we feel Trendy Tile can establish
itself as the premier decorative tile supplier to Canada.
26
REFERENCES
A Basic Guide to Exporting. Unz & Co. Website. Dec. 14, 2002.
<http://www.unzco.com/
basicguide/toc.html>.
Ball, Donald A., Wendell H. McCulloch, Jr., Paul L. Frantz, J. Michael Geringer, Michael S.
Minor. International Business: The Challenge of Global Competition. New York:
McGraw-Hill, 2002.
Bora Laskin Law Library, University of Toronto. Law Related Internet Resources by Subject.
Dec. 16, 2002. <http://www.law-lib.utoronto.ca/resources/topic/anti.htm>.
Consumer Protection and Private International Law in Internet Contracts. Rheinhard Schu.
Revised June 1996. Viewed Dec. 16, 2002.
<http://ruessmann.jura.unisb.de/rw20/people/rschu/public/essay.htm#H%201>.
Explore Exporting. Dec. 14, 2002. <http://www.export.gov/explore_exporting/
whatsinitforme.html>.
Government in Canada Fact Sheet. Published June 1997. Viewed Dec. 16, 2002.
<http://www.cic.gc.ca/english/newcomer/fact_06e.html>.
International Trade. Department of Foreign Affairs and International Trade. Dec. 16, 2002.
<http://www.dfait-maeci.gc.ca/menu-en.asp>.
PricewaterhouseCoopers 2002. 2002 Ontario Budget: New Minister Delays Tax Cuts. Tax News
Network Canada. Dec. 12, 2002.
<http://www.ca.taxnews.com/tnnpublic.nsf/notespages/Headline+01?OpenDocument&rn
k=6&qry=canada+income+tax+rate%3f >.
Profiles in Culture – A Snapshot Look at the Canadian People. Bob Riel. Dec. 13, 2002.
<http://www.relojournal.com/nov96/culture.htm>.
27
Shopping and Shipping Across the Canadian Border. Canada Online. Dec. 16, 2002.
<http://frenchcaculture.miningco.com/library/weekly/aa112599a.htm>.
Statistics Canada. Dec. 12, 2002. <http://www.statcan.ca/start.html>.
U.S. Business Advisor – International Trade. Dec. 14, 2002.<http://www.business.gov/
busadv/maincat.cfm?catid=22>.
What Taxes Apply in Canada? Cliff Benderoff. Cliff. Dec. 16, 2002. <http://www.benderoff.ca/
comtaxes.htm>.
Winners Makes ‘Sense’of Canada’s Home Market. Jim Fox. DSN Retailing Today.
March 19, 2001, Vol. 40. EBSCOhost. Dec. 10, 2002.
<http://weblinks2.epent.com/citation.asp?tb=0&_ug=dbs+6+In+en.html>.
28
Appendix A-1
Type of dwelling and population by type of dwelling
Average
Population
Occupied
number of
Private Collective
in
Population private
persons
households dwellings collective
dwellings
per private
dwellings
household
number
2001 30,007,095 11,562,975 11,562,975
25,755
479,520
2.6
1996 28,846,760 10,820,050 10,820,050
22,615
449,001
2.6
1991 27,296,859 10,018,267 10,018,267
31,405
446,885
2.7
1986 25,309,331 8,991,672 8,991,672
19,800
434,370
2.8
1981 24,343,181 8,281,531 8,281,531
17,370
405,735
2.9
1976 22,992,604 7,166,095 7,166,095
16,445
384,530
3.1
19711 21,568,311 6,034,508 6,041,302
17,585
392,695
3.5
1966 20,014,880 5,180,473 5,180,473
18,236
463,266
3.7
1
1961 18,238,247 4,554,493 4,554,736
22,475
483,718
3.9
Source: Statistics Canada, Census of Population.
Last modified: 2002-10-22.
Source: www.statcan.ca/english/Pgdb/deffamil66.htm
29
Appendix A-2
Private households by structural type of dwelling, provinces and territories
Canada
2001
Newfoundland and Prince Edward
Labrador
Island
number
189,040
50,795
507,245
133,070
Total households
11,562,975
Total persons in households 29,522,305
Average number of persons
2.6
in household
Single-detached house
6,615,365
Total persons in
19,046,200
households
Average number of
2.9
persons in household
Apartment, five or more
1,050,195
storeys
Total persons in
1,934,735
households
Average number of
1.8
persons in household
Movable dwelling
157,560
Total persons in
364,645
households
Average number of
2.3
persons in household
Other dwelling
3,739,855
Total persons in
8,176,725
households
Average number of
2.2
persons in household
Source: Statistics Canada, Census of Population.
New
Brunswick
360,020
895,310
283,820
717,535
2.7
2.6
2.5
2.5
142,330
36,895
246,440
206,765
400,415
105,040
666,615
561,710
2.8
2.8
2.7
2.7
945
30
13,370
3,525
1,250
40
20,745
4,805
1.3
1.2
1.6
1.4
1,350
2,225
13,345
10,565
3,450
5,320
31,890
25,840
2.6
2.4
2.4
2.4
44,415
11,650
86,875
62,960
102,130
22,665
176,065
125,180
2.3
1.9
2.0
2.0
Last modified : 2002-10-22.
Source: www.statcan.ca/english/Pgdb/famil55a.htm
30
Nova
Scotia
Appendix B
Trendy Tile
Pro Forma Balance Sheet
December 15, 2002
Assets
Current Assets:
Cash
Accounts Receivable
Inventory
Total Current Assets
160,000.00
20,000.00
30,000.00
Fixed Assets:
Building
Equipment
Furniture
Computer Equipment
Total Fixed Assets
10,000.00
20,000.00
2,000.00
28,000.00
210,000.00
portable building
5 kilns
computer desk and chairs
60,000.00
Total Assets
270,000.00
Liabilities and Stockholders Equity
Current Liabilities:
Royalty to Artists
Accounts Payable
Total Current Liabilities
100,000.00
10,000.00
110,000.00
Long Term Debt
110,000.00
Stockholders Equity
Preferred Stock
50,000.00
Total Liabilities and Stockholders Equity
270,000.00
Source: Trendy Tile’s Accounting Department
31
Appendix C
HOLIDAYS
Date
January 1
English Name
New Year’s Day
(varies)
Good Friday
Local Name
New Year’s Day,
Jour de l'an
Good Friday,
Vendredi saint
Easter Monday,
Pâques
Victoria Day; Fête
de la Reine
(Quebec: Fête des
Patriotes)
Remarks
Statutory
Statutory. Typically
celebrated in April
(varies)
Easter Monday
Typically celebrated
in April
May 24
Victoria Day
Statutory.
Celebrated on the
Monday following
the 24th on a
weekend
July 1
Canada Day
Canada Day, Fête
Statutory. Canada’s
du Canada
birthday
First Monday in
Labour Day
Labour Day, Fête du Statutory.
September
Travail
Second Monday in
Thanksgiving
Thanksgiving,
Statutory.
October
Action de grâce
Thanksgiving is not
celebrated on the
same day in the US
Second Monday in
Remembrance Day
Remembrance Day,
October
Jour du souvenir
December 25
Christmas
Christmas, Noël
Statutory.
December 26
Boxing Day
Boxing Day,
Statutory.
Lendemain de Noël
If a Canadian holiday falls on a weekend, it is observed the following Monday
32
Appendix D
2002 Top Personal Income Rates Across Canada
33