Trade Across the Border

Going global is where growth opportunities lie for many businesses. Arizona companies may find Mexico and Canada inviting options to consider.

MEXICO

Those looking at Mexico may find themselves in good company, as 34 percent of Arizona’s exports currently go to our southern neighbor and 35 percent of what we import comes from there. “Mexico is Arizona’s largest trading partner,” says Patrick Welch, an attorney at Jennings Strouss & Salmon who currently sits on the Arizona-Mexico Commission. According to the Commission’s executive director, Margie Emmermann, the revenue involved in 2011 was $6.2 billion in exports and $13 billion in two-way trade.

Nearshoring Offers Competitive Advantage

For companies that have chosen to offshore various elements of their business, nearshoring is becoming recognized as offering its own advantages. In manufacturing, for instance, working with companies in one’s own hemisphere reduces distribution problems that can arise when dealing with larger geographic distances, Welch points out. He notes that Ford Motor Company has a manufacturing plant in Hermosillo and that many companies in the aviation industry supply chain that have a presence in Arizona have arrangements with manufacturing companies in Mexico. “From aerospace to IT to software services, there’s an enormous amount of opportunity in Mexico for manufacturing,” says Emmermann.

Tiempo Development discovered this resource seven years ago, after having had a bad experience offshoring software development projects to the Far East, relates Mike Garland, VP of marketing. Company founder Cliff Schertz began working with software developers in Hermosillo, which worked out so well that Tiempo now has software development centers in Sonora; Monterrey, Nuevo León; Saltillo, Coahuila; and Guadalajara, Jalisco, as well. “People in Mexico are appreciative of the opportunity to work with technology,” Garland says. Tiempo — which has been on the Inc. 500/5000 list the past two years and has increased revenue 40 percent over the past three years — believes in integrating communication between its development team and the customer, and CFO James Walbom observes, “The further away that team is, the harder it is to deliver the results the customer wants.” Proximity to Mexico for this Tempe-based company allows those involved in a project to travel back and forth easily. And having everyone in the same time zone (or close) means the workdays are similar and it’s easier to arrange meetings.

A successful relationship, Walbom notes, has “a lot to do with understanding legal and cultural differences, and how to navigate and align them with your business structures.” And he emphasizes the importance of investing in methodology and systems when recruiting in Mexico — so there is a unified process including a management plan regarding career advancement — and not treating it as an afterthought.

Welch cites other benefits of commerce with Mexico: political stability, an educated work force — “particularly in Sonora, and especially for manufacturing and IT” — and good infrastructure in roads, railways, airports and ports of entry. The Mariposa Port of Entry is currently undergoing a major renovation that will make it the most state-of-the-art in the entire Mexico-U.S. border, according to Emmerman. A $240-million investment, the project scheduled to be completed by August 2014 will improve access for pedestrians, vehicles and commercial trucks.

Business Is in the Basics

For Arizona companies doing business in Mexico, Welch recommends having a local partner because knowing local business practices and cultural differences is important. To locate that local partner, companies should do “really good due diligence on your contact, as you would anywhere,” says Welch. There are several organizations that can be helpful in connecting with local partners. These include Pro Mexico, a trade and investment office of the Mexican government; the Arizona Commerce Authority and the Arizona-Mexico Commission, which jointly maintain a trade representative in Sonora; and the Arizona District Export Council. Emmermann encourages Arizona businesspeople to take advantage of workshops and other interactive opportunities her organization offers regularly to meet with counterpart organizations in Mexico.

In addition to establishing a local partner, other functions Welch recommends seeing to are having a CPA (in either Arizona or Mexico), having an attorney on both sides of the border to navigate intricacies of legal differences, knowing the laws governing one’s business, and knowing visa requirements.

And Welch notes that, in addition to near-shoring opportunities for Arizona businesses in Mexico, there may be opportunities to attract finance capital from Mexican companies that want to invest in Arizona.

CANADA

Glenn Williamson, founder and CEO of the Canada Arizona Business Council, suggests Canada offers advantages to companies dipping their toes in international commerce for the first time. With bilateral U.S.-Canada trade at $1.35 trillion in 2012, the Arizona-Canada portion is $6 billion — which breaks down to $3.7 billion in trade, $1.7 in foreign direct investment and $1 billion in tourism.

“Canadians have a strong interest in Arizona,” Williamson says. It started with tourism, but there are now 300 Canadian companies that have offices or operations here. Says Williamson, only partly in jest, “Canadians are interested in any business that would justify them buying a house and living here for a bit.” Lifestyle, golf, sports and especially the weather has historically been the draw.

Connections Matter

Many decision-makers from Canada live here, according to Williamson, who observes, “There’s nothing more you want in investors and tourists and partners in bilateral trade than those who have a vested interest in the region you live in.” All nine of the new Canadian owners of the Coyotes hockey team have bought houses here, and Williamson shares that there is a growing trend of Canadian businesspeople who have been successful in Canada buying a house here, getting integrated into the community and buying businesses here or investing in them.

Other advantages Williamson cites for Arizona companies doing business with Canadian ones are the many things the two countries have in common: language, democracy, financial system, a stable government and geographic proximity. But there are cultural differences, and he emphasizes the importance of knowing the countries one is dealing with. “That’s fundamentally at the bottom of everything,” he says. Asking, “How do you expect to trade with people you know nothing about?” he notes that Canadians know “everything about you.” It’s about showing respect that Canada is relevant, he says, adding, “Let them know you understand hockey, or that Superman was created by a Canadian, or Canada gave us Jim Carrey. Knowing trivia about any viable business partner is good business sense, and it’s no different with Canadians.”

Although there is a great deal of intertwining of the U.S. and Canada across their common border — for instance, the U.S. Coast Guard and the Royal Canadian Mounted Police ships can make chases right through the border — Williamson cautions Arizonans to remember Canada is a sovereign nation and there are differences between Canadian and U.S. laws. “There will be smaller differences than with any other country on the globe,” he says, but it’s important to work with a Canadian lawyer to ensure compliance with Canadian law.

What matters most is making the personal connection. “If you’re going to sell to Canadians in Canada, go up there and make the sales call and get to know Canada,” Williamson says, noting that Arizonans tend to look to Calgary and Edmonton, but “Toronto and Montreal are viable opportunities for this region.”

Noting Arizona’s growing strength in life sciences, Williamson says this is an area of huge interest to Canadian businesses. “People are starting to say we should set up our U.S. operations in Arizona.” He compares this to aerospace, observing, “Honeywell and JDC Control Systems run huge operations in Canada out of here.”

Pointing out that Canada, with a population of only 34 million in a land area 41 times bigger than the United Kingdom, accounts for 40 percent of the direct foreign investment in the United States, 44 million visitors and more than $700 billion in trade and is the largest energy supplier to the U.S., Williamson says, “All that screams opportunity for Arizona.”