Doing Business in Canada

Welcome to “Doing Business in Canada,” the sixth in our “Going Global” blog series. Designed for companies looking to expand globally, our series has already covered China, the Czech Republic, Hungary, France and Italy. This series is intended to address important but below-the-radar finance and accounting issues. (Please note: this series is not intended to provide cross-cultural tips.)

Despite being situated across the world’s longest unfortified border from the U.S., it seems that many Americans know more about Europe than they do about Canada. For example, Americans may not know how many provinces there are (10 plus three territories) or that its capital is not Toronto, Montreal or Calgary, the country’s three largest cities. Instead, Canada’s capital is its fourth-largest city, Ottawa, whose name is derived from the Algonquin word for “trade.”

That’s fortuitous because Canada is the U.S.’s largest trading partner (China is 2^nd, according to the Dept. of Commerce, ahead of Mexico, Japan, Germany and the U.K.), due to 1989 U.S.-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA). According to the U.S. State Dept., Canada is “the leading export market for 36 of the 50 U.S. states and is a larger market for U.S. goods than all 27 countries of the European Union.”

In January 2012 alone, U.S. trade with Canada exceeded $48 billion – yes billion. (In contrast, the U.K. generated $8.8 billion in January.) In 2010, 75 percent of Canada’s exports went to the U.S., representing $277 billion, according to the State Dept., while 75 percent of Canada’s imports originated in the U.S., representing about $249 billion. The country’s major exports include: motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment; chemicals, plastics and natural resources.

Courtesy of the U.S. Census Bureau

Canada’s $1.389 trillion (2011) economy is doing well, and showed a 2.2 percent GDP growth rate in 2011. It has “an affluent, high-tech industrial society” according to the CIA World Fact Book. (Its 2.2 percent growth ranked it 147^th in the world out of 214 world economies, ahead of the U.S. at 172 and the U.K. at 181.) Inflation reached 2.8 percent in 2011, 49^th out of 222 world economies.

In 2012, the World Bank ranked Canada as the 13^th (out of 183 economies), based on ease of doing business there as determined by 10 different variables. In contrast, the U.K. ranked 19^th and Italy ranked 87^th. Although slipping from the 12^th spot in 2011, Canada ranked #3 in terms of starting a business, 5^th in protecting investors and 42^nd in trading across borders.

Canada is rich in natural resources, and is estimated to have the world’s third largest oil reserves behind Saudi Arabia and Venezuela. However, for all that, 76 percent of its labor force works in the services sector, and unemployment in 2011 was 7.4 percent, ranking it 85^th in the world out of 200 economies, ahead of the U.K. at 94 and the U.S. at 105.

As we look at accounting issues in Canada, there are similarities with the U.S., more so than with EU countries, despite the fact that Canada is a member of the Commonwealth of Nations, headed by Queen Elizabeth II, and that Commonwealth countries signed a framework of common values and goals.

Now that we’ve provided some background on Canada’s economy, tomorrow we’ll tackle some tips about operating locally and integrating internationally.