Valérie Verdoni
Senior Director | CPA, CA

Many mid-market companies are redeveloping their international ambitions after having scaled back during the pandemic.

As shown in the latest figures from Grant Thornton’s research, conducted between October and December 2020, more companies are deciding to shift their focus towards international markets in their post-pandemic strategic plan. This global trend is important as it highlights game-changing opportunities internationally for all mid-market companies and Canadian businesses are seizing up this occasion in the market to grow.

Changes in the market leads to a boost in entrepreneurialism

Before the pandemic, many compagnies across Canada were active internationally and growing their market worldwide as part of a pre-existing plan. However, the recent economic and market changes have opened doors for many more Canadian compagnies to speed up their plans as a direct result of COVID-19. In fact, the latest figures from Grant Thornton’s latest research reveals that 20% say that they only started to increase their focus on international markets since the outbreak of the pandemic.

Additionally, significantly more Canadian mid-market companies (24% in H2 2020 vs 15% in H1 2020) are now expecting to increase their ratio of employees focussed on international markets in the next 12 months. This renewed appetite among the mid-market, even as the pandemic lingers, perhaps best demonstrates the sort of entrepreneurialism we have here in Canada.

Abundant sales opportunities are drawing companies abroad

The re-embracing of international sales is likely to be very significant in positioning the mid-market for growth during and beyond the pandemic and is a reminder of a key characteristic of our businesses. This shows how they are able to see the trends and opportunities in the marketplace and then adapt quickly to take advantage of them.

Below we show how COVID-19 has impacted those increasing their international sales focus. Competitive changes are a key theme here, with 48% mentioning the opportunity to form new international relationships due to the departure or failure of competitors. Another 39% mention the lower levels of competition in international markets, underscoring the competitive disruptions and shake-out from COVID-19.

COVID-19 factors contributing towards international focus according to entrepreneurs:

  • Opportunity to form new international relationships from the recent departure/failure of competitors: 47.5% of businesses;
  • Lower levels of competition in international markets due to COVID-19: 39.3% of businesses;
  • It has become easier to take products or services internationally: 37.7% of businesses;
  • Stimulation of international demand due to COVID-19: 32.8% of businesses;
  • Internationalisation of your supply chain making overseas markets more accessibles: 29.5% of businesses;
  • Sales disruption in your domestic markets from COVID-19: 26.2% of businesses;
  • Beneficial government stimulus programs in international markets due to COVID-19: 24.6% of businesses;
  • None of the above: 6.6% of businesses.

The other major incentive is customer demand, with 33% seeing stimulation of international demand due to COVID-19 and 25% mentioning the positive benefits of government stimulus programs. With positive indications on both the customer and competitor side, it’s easy to see why another 38% say it is now easier to take products and services international. Although other factors like the rise of digital communication will also be at work here.

A once in a generation opportunity to grow internationally

All of this data points to what we think is a once in a generation opportunity to grow business internationally, and one that all mid-market leaders should be aware of. As in any gold rush, it pays to think before joining the rush. Our leaders stress the importance of being strategic in your decision-making. We encourage businesses to identify where they will have the most impact. Furthermore, the importance of looking beyond the immediate and thinking about the medium and long-term goals, with clear priorities and action plans that are also backed up by scenario planning, to support resilience.

For those companies wanting to exploit these opportunities will need to be both growth ready as well as agile. Our team of experts, along with our international solution offer can help you conquer new frontiers.

04 Jun 2021  |  Written by :

Valérie Verdoni is a senior manager at Raymond Chabot Grant Thornton for business and strategy...

See the profile

Next article

There is increasing talk of diversity and inclusion (DI) policies in the workplace. But what impact do these policies have on your organization and how do you go about integrating them?

Diversity and inclusion management in business is defined as the attraction and management of practices that promote the inclusion of women, Aboriginal peoples, different cultural communities, people with disabilities, LGBTQ+ community, experienced workers and people from disadvantaged backgrounds. However, these practices are still not understood by many companies today. Progress toward greater diversity and inclusion, particularly gender parity in senior management, has moved more slowly over the past decade than it should (ref. Women in Business 2021). And while there is greater participation, higher levels of education, and comparable qualifications in 2021, diversity groups are still underrepresented in business and have higher rates of unemployment. Career paths are more difficult and there is still underrepresentation in various functions within organizations (Saba, T. 2019).

Unfortunately, the pandemic has amplified this phenomenon because the cultural and gender diversity in sectors that are doing the best (technology, manufacturing, mining and metals, construction) and those that are in the basic service sector (health, food retail, pharmacy) is mostly homogeneous. Conversely, the forced stoppages in the restaurant, tourism and accommodation sectors, or constraints of telecommuting and school and daycare closures have had a greater impact on women and minorities. As a result, Quebec now has a majority of women and minorities among its unemployed. A diversity and inclusion policy in the workplace is therefore necessary for the survival of companies, not to mention all the other benefits that come with it.

The benefits of integrating a DI policy

According to a study of diversity in the workplace (OECD, 2018, 2020), the reasons for companies to embrace diversity are reportedly to enrich their human capital (67%), stimulate creativity and innovation (46%), address ethical considerations (43%), address labour and skill shortages (37%), and meet legal obligations (37%).

The impact of greater gender diversity within a company is even greater than we might think. Diversity of ideas is linked to better decision-making, better risk management and better financial performance of companies. (Isidro and Sobral; 2015) According to Christine Regimbal, Partner and Head of Diversity and Inclusion at Raymond Chabot Grant Thornton, “There are numerous benefits to a diversified and inclusive corporate culture, starting with a greater potential for innovation and an increased sense of belonging.”

While there may be a strong and genuine intention to make your organization diverse and inclusive, just talking about it or writing it into a policy does not make it a practice. And like any new policy or process, it’s best to start with a realistic plan and clear goals and then define the practices to be implemented.

Diversity and inclusion management best practices

We suggest an eight-step approach based on best practices to help you prepare for the implementation of a DI management initiative in your organization.

Step 1 – Management’s commitment

The first step is to ensure that the organization’s leaders are committed to diversity and inclusion. Ideally, members of management will draft the policy and identify initiatives. A practice leader will then be appointed to ensure implementation and dissemination of key information to all groups within the company.

Step 2 – Set up a committee

The next step is to set up a DI advisory committee or management committee in the organization.

Step 3 – Budget and monitoring

You will need to allocate a specific budget to manage and implement your DI practises. You should identify and implement monitoring and performance indicators related to the DI program, for example: number of women managers/total number of managers; number of visible minority managers/total number of managers; and so on.

Step 4 – Training

There are DI courses available for different levels of managers and employees. Various topics are covered, such as unconscious bias, intuitive practices and reflexes, ingrained preconceptions, employee evaluations, etc.

Step 5 –Programs

You will then need to integrate various programs that promote diversity and inclusion, such as a career management or leadership program.

Step 6 – Procedure review and adjustment

Over time, your organization developed numerous human resource management policies and procedures that will need to be reviewed and adjusted to reflect the new DI management approach.

Step 7 – Mentoring and networking

To create a sense of belonging and attraction that will generate a feeling of social security in your workplace, encourage your teams through diversity mentoring and networking.

Step 8 – Internal survey

Lastly, an internal survey is a good way to determine whether your various approaches are successful and ascertain the change in practices, observe adaptations to standards and procedures and gather employee feedback.

To complement this process, foster relationships with vendors who advocate DI management practices in the workplace.

Efforts must be continued and measured for more than five years in order to properly implement this new organizational culture and to see the results of these changes.

Adapt current policies to support DI management

Since a business is a self-contained system, it is important to review all management practices, especially internal human resource management policies. Many of the policies implemented in companies do not necessarily contribute to better DI management. Some of these should be given greater attention.

Recruiting policy

For example, review gender neutral job postings, consider postings on targeted networks and anonymous CV recruiting, use employee photos showing diversity in promotional campaigns or on the corporate website.

New employee onboarding and training

For example, include diverse members in corporate presentations and training for new employees, promote the development of inclusive practices among current employees.

Succession and career management policy or practices

For example, ensure that unconscious stereotype biases are avoided in performance management practices, potential assessments, identification of management succession candidates and identification of critical jobs and profiles sought for their staffing.

Work/personal life reconciliation policy and cultural holidays

For example, ensure multicultural representation in the company’s practices, without generating favoritism and by respecting internal equity and organizational integrity.

We now encourage you to take a step back and look at the makeup of your executive committee and board of directors. Ask yourself how you could optimize their membership and promote diversity? Never underestimate the strength of a multicultural, multi-gender and multi-generational team, both in the search for solutions and its impact on the organization’s performance.

Take it one step at a time, and don’t hesitate to consult our experts to integrate a structured approach to promote diversity management within your entity.

Next article

We are on the edge of a progressive recovery. A clear vision of your activities is needed and can be achieved by analyzing your profitability threshold.

In order to survive and regain momentum, you must review your corporate strategy and support your decisions with adequate data. To do this, it is essential that you analyze your profitability threshold and calculate the accounting “break-even” point.

Profitability threshold and break-even point: What are they?

The profitability threshold is the minimum amount of sales to be achieved during a targeted period to reach a balanced budget (break-even point). It enables you to determine whether a product or service is profitable, which is crucial information for supporting managers’ strategic decisions.

The accounting break-even point is a complementary indicator to the profitability threshold. It explains the relationship between cost, production volume and returns. It can be expanded to show how changes in the ratio of fixed to variable costs, such as raw material prices and revenues, affect a company’s profitability.

These two ratios are critical because they allow you to determine when your company breaks even, i.e., when it becomes profitable.

Know your profitability threshold to avoid flying blind

Analyzing the profitability threshold, but especially the accounting break-even point, allows company managers to establish different action plans based on key ratios. For example, they can use this data to set financial objectives and improve the profitability of a product or service.

In addition to being an essential management indicator, analyzing the break-even point helps determine when the company should start generating profits. Managing your business without these indicators is like running your business blind!

The importance of forecasts

Most companies have had to shut down or significantly reduce their operations in recent months. If they haven’t already done so, they will soon gradually start up again, and now, they have to deal with several completely new elements. During this gradual recovery, it will be difficult to know your actual sales. It is therefore important to make forecasts in advance that will allow you to restart or continue with realistic data.

Your sales, as well as the various fixed and variable costs, will have a direct impact on your profitability threshold and, consequently, on your accounting break-even point. Therefore, as soon as you determine these forecasts, you will be able to assess your project’s viability. If the forecasted data is not promising, you will be able to adjust your strategy accordingly, for example, by increasing your hourly rate or focussing on a more profitable part of your activities.

“Last year + 2%” no longer applies!

As you can see, there are many elements involved in calculating the break-even point. The many upheavals experienced throughout the supply chains means that companies’ forecast calculations are probably based on data that is no longer accurate. The benchmarks and reflexes must be revised. For a successful recovery, it is essential that you conduct a thorough analysis of the following.

1. Sales

There have been, and will continue to be, major changes in operations. Some entities have seen their business volume explode due to online sales but others, unfortunately, have seen a decline.

2. Fixed costs

Fixed costs are the recurring expenses that you have to pay, regardless of the company’s level of activity, such as depreciation, rent, administrative costs, various fees, salaries. This amount normally remains constant, regardless of your turnover. However, it is now important to take into account the subsidies offered by the government and other assistance measures from which you can benefit (exemption from/decrease in rent, agreement with banks for capital debt, non-payment of interest, etc.).

3. Variable costs

Variable costs, also called operating expenses, depend on the company’s activity and include, for example, supplies and transportation costs. Input prices are currently changing, this will have a direct impact on the contribution margin (sales – variable costs) and on the profitability threshold (fixed costs/contribution margin rate).

To ensure that you take into account all the variables needed to calculate the break-even point and analyze your company’s profitability, don’t hesitate to call on your trained professional accountant to assist you.

Next article

The International Accounting Standards Board (IASB) has issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). The amendments require an entity to recognize deferred tax on certain transactions (e.g., leases and decommissioning liabilities) that give rise to equal amounts of taxable and deductible temporary differences on initial recognition.

In May 2021, the IASB issued narrow scope changes to IAS 12 Income Taxes (the amendments) to specify how entities should account for deferred tax on transactions such as leases and decommissioning obligations.

In specific circumstances, entities are exempt from recognizing deferred tax when they recognize assets or liabilities for the first time. This is referred to as the initial recognition exemption. There had been some diversity in practice as to whether the initial recognition exemption applied to transactions such as leases and decommissioning obligations. These are transactions where entities initially recognize both an asset and a liability.

The amendments clarify that the initial recognition exemption set out in IAS 12 does not apply and that entities are required to recognize deferred tax on these transactions. The aim of the amendments is to reduce diversity in the reporting of deferred tax on leases and decommissioning obligations.

The amendments are effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted.

Our thoughts

We are supportive of the IASB addressing this issue as it has become more prevalent since IFRS 16 Leases became effective for annual reporting periods beginning on or after January 1, 2019. We believe the amendments will reduce the diversity in practice that is currently being seen on accounting for income taxes related to leases and decommissioning obligations.