by Jenna Kavanaugh, Marketing Director
If you ask Carolyn Powell about her favorite pastime, she’ll tell you its mixing up a new cupcake recipe. But beyond her famous strawberry frosting, this Buffalo native’s has the right recipe to help Canadian businesses succeed in the U.S. Carolyn is a member of BNE’s Business Development team, where she focuses on the Canadian market. Since joining BNE in 2008, Carolyn has helped 32 Canadian companies expand into the Buffalo Niagara region, representing over $706 million in investment and more than 1,600 jobs.
Carolyn also works with businesses involved in food processing and agribusiness, such as yogurt, protein products, and food packaging. Many of these companies are headquartered all over the world.
Carolyn is certified as an EDFP (Economic Development Finance Professional) by the National Development Council.
Based on your experience, describe some of the key pitfalls Canadian business owners must anticipate and avoid with regards to entering the US market?
Across the U.S., well-funded networks have sprung up at the state and municipal levels to ensure Canadian companies tap into the best strategic and cost-saving advice available early in their decision making process. Organizations like ours, Buffalo Niagara Enterprise, can help Canadian business entering the U.S. and save time and money and help you leverage the U.S. system in your favour while avoiding the pitfalls.
Canadian companies looking to expand to the U.S. are best served by following a due diligence process that evaluates an organization’s needs, long-term plans, and addresses practical consideration in a proscribed order. For example, some companies seek to secure real estate options before address critical factors such as immigration first; this can put a company and their employees at risk. Also finalizing a real estate transaction prior to securing incentive commitments can make a company ineligible to receive key incentives.
Critical, first step due diligence items include the following:
- Legal considerations: What is the ownership structure going to be for the U.S. operation? What immigration items need to be addressed for Canadian employees coming to U.S. facility for set up, hiring, or supervision;? Will they need a work visa? Does the company have patents in Canada that they need to protect in the U.S.?
- US Tax and Accounting: Will the U.S. and Canadian operations be legally connected? What are the pros and cons? How will the company transfer money back to the Canadian corporation and owners? How does the company avoid double taxation?
- Human Resources: What is the labor pool like in the community that you are considering? What is the pay scale for workers in the area? In the U.S., there is no mandatory severance or mandated holidays; what happens when you fire and employee that has been on the job for 5 years and what does a company offer for holidays?
How do Canadian businesses looking to expand into the U.S. maintain a competitive edge?
Since 2000, we’ve helped more than 60 Canadian companies expand their business into the U.S, Each of these companies was unique had their own reasons why they wanted to enter into the U.S. market and none of these companies did it exactly the same way.
Successful companies are those that had a long term vision for their organization so when they structured their business as they enter the U.S., they evaluate their transportation, distribution and communications infrastructure requirements to determine where these would be best met. Likewise these companies conduct due diligence on the availability of a quality workforce.
Companies that complete their due diligence improperly or too quickly, can have unneeded costs, disruption, and loss of production. For example, a company that does not evaluate the real estate market may lease or purchase a building that is not suitable for their needs and future expansion; or a company that does not evaluate the competitive workforce model may offer an employee benefits program that is too rich causing high operating costs. Also, the program may be too low causing them to be unable to recruit the needed employees for their operation.
One successful example is NutraBlend Foods, a leading manufacturer in the sports nutrition industry. They are headquartered in Cambridge, Ontario with another location in Brantford, Ontario and first expanded to the Buffalo Niagara region in 2009. What began as a packaging facility with 40 employees evolved into a dry ingredients blending operation in 2011. Today they have 130 employees and are adding a third production line due to increased U.S. sales. The building that they purchased in 2009 has accommodated their growth plans and they selected a community that has been able to provide the needed skilled workforce.
What is your top advice for Canadian entrepreneurs taking their business south.
- Connect with field experts in the U.S. I strongly recommend that the first step you take in your expansion plans is to seek the advice of organizations that specialize in helping companies grow their business in the U.S. Organizations like mine, Buffalo Niagara Enterprise, offer a range of services and frontline advice expert advice free of charge. The beauty of this arrangement is that is provides a single point of contact to a roster of experts in every key area: site selection, human resources, accounting, taxation, insurance, legal issues, financial services, utilities distribution services, and incentives.
- Locate in an area that provides your management team easy access Whether your business is big or small, the complexity of today’s business activity requires that your company’s leaders are able to be engaged in a hands-on manner. Critical members of your management team must be able to reach your U.S. site easily and economically to enable the face-to-face coaching, oversight and knowledge exchange that are critical to expansion success. As your company continues to grow, you can effectively and rapidly deploy your best minds and practitioners to your expanded operations. Ultimately, this exchange and in-person oversight ability strengthens both your Canadian and U.S. operations.
- Choose a location your employees will want to call home Employee satisfaction is enhanced when staff can live well where they work. Reduced commute times in growth areas that offer excellent quality-of-life pared with reasonable cost-of-living are preferred. Look for signs of investment in the communities to which you are considering expanding – reputable schools, property development, restoration and reclamation activity, and services and amenity provisions that caters to the full range of singles, couples and families.
- Learn from other Canadian companies that have successfully expanded Gain insight into the challenges and payoffs of U.S. expansion from Canadians who’ve been through the process. One way to access your fellow Canadians is through the U.S. economic development groups that have advised them. We are happy to set up one-on-one meetings between companies that are considering an expansion and companies that have already established operations. In fact we are offering a bus tour of two such facilities this fall.
What are some of the existing advantages for Canadian business expanding south of the border that can be capitalized on?
The U.S. population offers Canadian businesses access to a market that includes nearly ten times the number of people living in Canada. From the Buffalo Niagara region, companies can reach 41% of the U.S. population in a one day drive. There are also the similarities in consumer-culture between our two countries, our sheer proximity, and the unparalleled trade and investor relations that we enjoy. Canadian companies who have already made the move enthuse about all they have gained. It starts with instant boost to capacity and capabilities. Add to the list the enabling of U.S. domestic shipping that U.S. customers frequently request and the appeal of the “Made in the U.S.A” labeling which U.S. customer revere and municipal contracts often requires.
What practical tax advice do you have for Canadian companies expanding into the US?
When expanding into the U.S., Canadian companies need to consider what type of entity (Corporation, LLC, etc.) they should use to minimize their effective cross border tax rate. Canadian companies also need to review what states they are going to be doing business in and consider the income, franchise and sales tax ramifications to each jurisdiction to ensure compliance with the relevant state and local tax laws. In building a successful cross border tax strategy, Canadian companies need to have a complete understanding of the Canada – U.S. Income Tax Treaty. Understanding the Treaty will help them structure their operations to minimize tax exposure on both sides of the border. While state and local taxes are still assessed, there may be an exemption from Federal tax under the Treaty if the operations are structured properly.
Canadian companies wanting to expand into the U.S. should understand that both countries have a vested interest in the income that is being reported. A best practice for such companies is to ensure that any transaction between the Canadian and U.S. operations are properly documented and are performed at an “arms length” price to comply with the Transfer Pricing requirements. While Transfer Pricing is one of the key focuses of both CRA and the IRS, there are other considerations to building a successful cross border tax strategy such as complying with the U.S. employment, payroll, insurance and other similar laws. These areas are always scrutinized and you can save yourself problems and penalties on the backend by addressing them up front.
6. Finally, can you provide some information about incentives that Canadian business can take advantage of?
Significant government incentives exist to attract Canadian companies to the U.S. In some states you can combine tax breaks to reduce your company’s overall effective tax burden to as low as the statutory minimum. In the U.S., and New York in particular, most companies are candidates for economic incentives based primarily on two major factors: the number of jobs created and the dollar amount of the investment a company will make by virtue of their business expansion.
Moreover, many of these incentives are site-specific and available through either state, county or other municipal sources and must be applied for through the appropriate channels. Organizations like Buffalo Niagara Enterprise can assist companies through this process and make the necessary introductions. Incentives can include low-cost power allocations, training programs, employment tax credits, investment tax credits, and property and sales tax exemptions. Depending on the size of your operation, these types of incentives can help offset some start-up and operating costs.
When Welded Tube of Canada decided to invest in a new steel tube and pipe mill in the U.S. in order to have the “Made in the U.S.A. label”, one of the most attractive benefits of the Buffalo Niagara region, which is unique to our area, was the allocation of low-cost hydro-power they received from the New York Power Authority (NYPA), significantly reducing their cost of power and making them more competitive in the U.S.
It is critical to work with organizations well-versed in incentives in the community you are evaluating, because incentives continually evolve. For example, New York State Governor Cuomo recently announced the groundbreaking START-UP NY program creating tax-free zones across the State for new and expanding businesses that partner with a university or college. Companies accepted into the program will be free of all New York State (NYS) corporate income tax, business taxes, state and local sales taxes, franchise fees and even personal income tax of owners and employees.
Contact Carolyn at 716-541-1740 or at email@example.com