How to Size Markets in Canada and Realize Their True Potential

April 26, 2012. There is often very little publicly available data describing the details of markets in Canada. One common rule of thumb that is used by some multinational companies equates Canadian markets, industries and segments to 10 percent of their US counterparts, but this practice is outdated. Even though the US is Canada’s biggest and closest trading partner "“ the US buys 75 percent of Canada’s exports and produces 50 percent of its imports - Canada’s unique geography, politics, economy and markets mean that the country is not simply a smaller version of its neighbour. How can strategic business planners provide accurate market sizing reports on Canada to their CEOs and boards?

We ask Rahul Dhingra, Senior Consultant at M-Brain (formerly Global Intelligence Alliance) North America, for his comments.

Q: What is the real issue with the 10 percent market size “˜rule of thumb’?

“I have been working on market sizing and competitive landscape projects in the US and Canada for many years. In some cases, firms from Europe or Asia-Pacific are interested in entering the Canadian market, or interested in North America in general. Other times, US companies are considering expanding their market reach to the North.

Many times I have encountered companies that follow the “Canada is 10% of the US market in size” guideline. But the results of our research at M-Brain (formerly GIA) indicate that the total North American market is rarely 110 percent of the US market in size. Canada has specific industries that it excels at, based either on training and innovation, or on natural endowment. Some of these markets such as oil and gas are large while others such as finance and insurance are smaller.

Each market in Canada has unique characteristics, which means that business approaches are different from that of the US, EU or elsewhere. It is unfortunate that uninformed strategic business decisions are being taken based on a lack of research on these characteristics.

While assumptions and estimates have their rightful place in market sizing, the key disadvantage when making strategic decisions with poorly-informed market sizing estimates is the potential to over-invest in a market entry strategy that is not justified, or to under-estimate the competition or complexity involved in meeting the demand of a large Canadian market.

Imagine any supplier of coffee, beer or hockey equipment making the mistake of assuming that the markets for these products in Canada are small, and therefore not worth pursuing. They would miss out on some key North American demand. Or take the pharmaceutical sector for example. The Canadian biosimilar market is opening up from a regulatory standpoint, and enabling more emerging-market-based suppliers to enter North America than is possible just in the US. Finally, any supplier to the oil, gas or mining industry will miss out if they decide not to pursue Canada’s market based on a misinformed assumption, rather than on actual research.”

Q: How are some Canadian sectors different from the US?

“When sizing the market in Canada, it is not enough to measure demand and understand the competition. One must also consider unique regulations such as minimum environmental safety and efficiency standards, and the ability for supply clusters to adapt to new technologies over time. Take the agricultural sector for example: new innovation is incentivized and old, inefficient or eco-unfriendly equipment is disallowed. Therefore, not just any farm equipment can be sold in Canada, regardless of where it comes from, and how much it costs.

Canada is considered a world leader in oil and gas equipment and services. The overall oil, gas and mining sector is much larger than 10 percent of the same sector in the US. Any supplier seeking to serve this market directly or indirectly would be advised to understand the true size and nature of the demand for their products and services. It would be important to learn, for example, that Canada has some very large oil deposits in the North, but they are not all easily accessible, due to both terrain and winter weather. Therefore, traditional large oil extraction equipment and large labour crews cannot always be deployed to the oil reserves.

Overall, Canada has a large manufacturing base that is about nine percent of the US in size, where over 80 percent of Canadian manufactured goods are exported to the US and China. The following table provides some guidelines for understanding specific Canadian markets.”

Sector Size (GDP) Growth Rate Percentage of US Market
Oil and Gas
(& Mining)
$53.9B 0.6% 37%
Agriculture $26.4B 0.7% 17%
Pharmaceuticals $4.3B 1.8% 5%
Finance, Banking, Insurance $83.5B 3.2% 6%
Retail $76.3B 3.7% 8%
Manufacturing $159.7B 1.4% 9%

Notes: Figures are CAN$ billions. Statistics as of 2010. Growth compounded over nine years. Source: Industry Canada, and US Bureau of Economic Analysis.

Q: What are the hindrances to gathering market intelligence on Canadian markets and your recommended approach?

“There is very little data publicly available describing most Canadian markets. Therefore custom research and analysis is required to determine the competitive landscape, the suppliers and their market shares, and the overall demand forecast for most markets.

The return from investing in Canada-based market sizing research is the ability to make informed strategic business decisions, and a clear understanding of the local business culture as it relates to a particular segment: recent trends, competitor rivalry, and insights regarding market entry strategies. Ultimately, if your firm is considering market entry, expansion, or innovation in competition, you ought to consider the real size and shape, rather than assume what you might encounter based on what some other markets look like.

In terms of market sizing, I recommend an approach that includes publicly available secondary research sources; primary research with customers, competitors, and industry experts; and a value chain overview. Such an approach can provide insights in terms of market attractiveness, how to compete, how to enter a market and establishing growth strategies. At the same time as we discover the size of a unique sub-segment, well rounded intelligence research can enable a review of the competitors, industry opportunities and potentially even highlight unmet customer demands.”

Q: Can you please provide some examples?

“Yes, certainly.

A US based supplier of industrial goods saw an opportunity for their equipment to be used in the oil and gas industry. Forecasting demand to be 10 percent of the US oil and gas extraction market, they conducted a quick study of the existing competition, and debated about whether it would be worthwhile to invest in this market for a small share of the market. M-Brain (formerly GIA) provided much needed insights about the Canadian oil and gas extraction market, by explaining the Alberta oil sands subsector, the size of its labour market, and the forecast for its continued existence in the years to come. With this, they were able to commission M-Brain (formerly GIA) for a true market size and demand forecast exercise by taking into account new demand that was predicted to result from changing investments. The market turned out to be larger than 35 percent of the US market. This firm is now a strong competitor in Canada.

Another interesting case comes from the construction industry. An innovative building construction firm intended to conduct some research, and build a business case for a product using new technology. With very specific market size data difficult to come by, the 10 percent guideline was about to be used again. But there are multiple factors to consider if the Canadian building construction sector is really 10 percent of that in the US: population, density, varying regulations regarding the construction of buildings, public and private investment, and the general health of the economy. While the growth rate of this industry might be higher in Canada now, in the long run there are many more residential, commercial and industrial buildings required in the US, because there are many more people. The business case, it turns out, comes from discovering a test market that might show the US and the rest of the world the ideal return on investment for the firm’s innovative technology.

With more and more trade between Canada and the emerging economies of Latin America and Asia Pacific regions, distinctions between the nature and behaviours of US and Canadian sectors are of vital importance. Up-and-coming firms from emerging markets, for example, look at the Canadian pharmaceutical sector and after some brief reviews of GDP growth levels by country and sector, may actually deem the Canadian market to be 5 percent of the US market. But markets behave differently because they have different regulations. Some of the Canadian demand comes from US consumers. The forecast for biosimilars is predicted to open up in Canada, like it is in some Western European countries. However, the US market is much more heavily regulated and will open up much slower. Indian, Korean, and Chinese pharmaceutical production companies should be looking at market entry strategies in Canada before considering the US.”

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