2. Dominic Capocelli
INTB-344
I. Executive Summary
• KTM has never exported outside of the United States, but is now looking to export Below-the –
hook devices and box beam girders to Canada
• Canada is a country in the northern portion of North America with ten provinces that relies on
national highway, railway, and seaway systems for trade and commerce.
• There is always risk associated with doing business abroad, but, according to the PEST
analysis, Canada has a very low risk association due to its strong government, stable
economy, trade relationships, and technological aptitude.
• KTM will need to identify the proper ECCN for their products and conduct a thorough
evaluation of the export- screening list to make sure it is not exporting to people specifically
banned by the list.
• Its products are classified in the mechanical sector of the industry and Canada has the fifth
highest imported value of machinery in the world. Distribution takes place through a short
channel and typically products get shipped directs from manufacturer to end- user.
• The U.S. has a high share of Canada`s engineering imports and continues to be expand in
strength and demand.
• Its competitors are established Canadian companies as well as U.S. companies that have
been exporting to Canada for a length of time. Some include Pacific Design Engineering,
Mussell Crane MFG., Bushman Equipment, INC., and Avon Engineering.
• KTMs customers will be distributors, manufactures, and any business that needs heavy lifting
and handling machines. A need for new competitors in the industry will allow KTM to penetrate
the market.
• It must prove quality and durability of its products through international standards like ISO
1400 and ANSI/ASME
• It is advised that KTM use FCA incoterms because of the decreased risk associated with filling
out pre documents themselves and also to make sure all export documents mentioned are
accounted for.
• By using various promotion tactics like attending trade shows, using their website to show
NAFTA status, appearing in search engines, and submitting articles to newspapers, KTM will
have an easier time finding customers and penetrating the Canadian market
• Ultimately, Canada is a good candidate to begin exporting with, and Ontario seems to be the
most intriguing province. This is due to the language similarity, industry prominence, trade
levels with United States, and low level of risk in various impactful areas.
3. Dominic Capocelli
INTB-344
Introduction
KTM Solutions is an American company that has been in business since 2005, having just
celebrated their 10- year anniversary last year. It is a mechanical solutions company that provides
aerospace engineering, turnkey mechanical systems, and specialty engineering services. It
specializes in custom/ specialty machine design, material handling solutions, mechanical structures
and tooling, product development support, and CAD and analysis services. KTM`s state of the art
design systems, high-end tools, and focused team create compatibility for manufactures and
satisfaction for its customers. KTM has its main office on Thousand Oaks Boulevard in Greenville,
South Carolina where it is owned and operated by Paul V. Kumler, President of the company. KTM
has historically competed assignments within the United States, but is now looking to expand their
market and help satisfy needs and demand internationally, starting with Canada.
Product Overview
KTM Solutions provides customized products and services in the mechanical/ structural
engineering sector to support the aerospace, automotive, and automated machine industries. The
KTM website supplies a list of engineering, manufacturing, and consulting services that it offers.
These include product development, tool design, structural analysis, turnkey systems, sales models,
productivity analysis, and measurements. The experience and practicality of KTM Solutions puts it
ahead of the competition. KTM Solutions is looking to export lifting beams and custom designed box
beam crane girders. The lifting beams include the ‘Below-The-Hook-Lift’ which are designed to satisfy
OSHA and ASME standards, are proof tested, professionally reviewed, and allow for user training.
The Box Beam Crane Girders are heavy lift systems and are designed to customer load and length
specification and design to CMAA specifications. Both products are also compliant with US industry
standards. (See chart 1)
Chart 1: Products for export
Country Overview
Canada is located in the northern portion of the North American landmass with an area larger
than that of the United States. Because of its wide ranging topographies,1
the national highway and
railway systems are an essential factor in Canada`s international trade and commerce that connect
the 10 provinces to major ports around the country. Additionally, the Great Lakes and the St.
Lawrence Seaway system provide the means for both domestic and international marine
transportation2
. Canada is the United States’ principal trading partner, accounting for $312 billion
dollars of U.S. goods. A similar business culture, rule of law, and common liking for U.S. goods and
services make for smooth business integration. The anticipated future growth and expansion of the
1 Infoplease. Infoplease. Web. 18 Feb. 2016. http://www.infoplease.com/country/canada.html.
2 “Alberta, Canada.” Marine and Ports. Web. 22 Feb. 2016.
http://www.albertacanada.com/business/overview/marine-and-ports.aspx.
Product HS HS Code Duty Duty Tax
Below the Hook Lift 8426.12.00.00 Canada: 0% Canada: GST 5%
HST: 9.975-15%
Box Girder Beams 8426.11.00.00 Canada: 0% Canada: GST 5%
HST: 9.975-15%
4. Dominic Capocelli
INTB-344
Canadian economy is ensuring that goods and services will be competitive for years to come 3
. The
economy in Canada is driven by a high tech, industrial society. It resembles the U.S. market with a
pattern of production and high living standards. The 1994 North American Free Trade Agreement
dramatically decreased barriers to trade and increased economic integration. Banks in Canada also
recovered well from the 2008 financial crisis because of wise fiscal practices.4
III.
Environmental Analysis: Canada
Political
The government in Canada is a
Federal Constitutional Democracy and a
Constitutional monarchy. Much like the
United States, Canada has legislative,
executive, and judicial branches of
government to make, enforce, and carry out
the laws. Canada still has English influences,
as the head of state is Queen Elizabeth II.
However, the head of government is Prime
Minister Justin Pierre James Trudeau. Laws
are created by the Bicameral Parliament and
upheld by the supreme court of Canada. The
country is built upon a common law system,
which is the same as the U.S.5
. Canada is
considered a CRT-1 country, which indicates
that it has very low levels of economic,
political, and financial risk. Because of its
“sound macroeconomic fundamentals and a
strong regulatory environment” it is ranked
16th
in the ease of doing business index6
.
Specifically, political risk is how likely it is that
a government, any aspect of it, will cause adverse developments for an insurer. This is comprised of
the stability of the government, reliability of the political system, efficiency of bureaucracy, and
effectiveness of the economic policies. Canada is considered to have low political risk because of its
high income, abundant resources, transparent legal system, economy that is linked to the U.S., good
trade relations, and a plan to overcome its fiscal debt7
.
3 “Export.gov – Canada – Market Overview.” Export.gov – Canada – Market Overview. Web. 18 Feb. 2016.
http://apps.export.gov/article?id=Canada-Market-Overview.
4 Central Intelligence Agency. Central Intelligence Agency. Web. 18 Feb. 2016. https://www.cia.gov/library/publications/the-
world-factbook/geos/ca.html.
5 Central Intelligence Agency. Central Intelligence Agency. Web. 18 Feb. 2016. https://www.cia.gov/library/publications/the-
world-factbook/geos/ca.html.
6 “AMB Country Risk Report.” AM Best. A.M. Best Company, Inc., 18 Aug. 2015. Web. 24 Feb. 2016
7 “AMB Country Risk Report.” AM Best. A.M. Best Company, Inc., 18 Aug. 2015. Web. 24 Feb. 2016
Source: AMB Risk Report
5. Dominic Capocelli
INTB-344
Economic
The CRT from A.M. Best also found that there is very low economic and financial risk. This
means that there is a low likelihood for a fundamental breakdown that would be detrimental to an
insurer, and for “volatility to erupt due to inadequate reporting standards, a weak banking system, or a
poor regulatory structure.” Additionally, country`s output is diversified and thrives on international
trade with 77% of their exports going to the U.S. Insurance is also well regulated at the company and
federal levels in addition to having a well supervised financial sector with contingency plans for crisis
management.8
Social
The U.S. and Canada have one of the largest trade relationships in the world; therefore there
are social systems in place that put the two parties in mutually beneficial positions. Canada and the
U.S. are similar in several facets, which makes for a high ease of doing business. Using Hofstede`s
cultural dimensions as a reference, Canada parallels the United States` scores in power distance,
individualism, uncertainty avoidance, and indulgence. This indicates an interdependent nation with
accessible managers in a system that relies on communication and is consequently accepting of new
ideas and products, but also has a tendency to chase after desires and pursue passions with
optimism.9
Technology
Canada is a technologically oriented nation, which is a source for jobs, revenue, and a
significant portion of the countries GDP. The ICT sector is mainly made up of many small companies.
87% comprise software and computer services while 5.6% are in wholesale. Although there are many
more companies with less than 10 employees than companies with at least 500 employees, the
manufacturing sector harbors the highest number of large companies at 14.1%. The ICT sector
contributes heavily to the Canadian GDP at $69.5 billion (4.4 of GDP) and is a source for $159.9
billion in revenues generated per year, which have been increasing since 2007. The ICT sector is
also export oriented in manufacturing and domestically oriented in services.10
Additionally for
importers, under the federal Consumer Packaging and Labeling Act, Canada requires that all labels
be written in English and French and for them to have product identity declaration, net quantity
declaration and the dealers name and principal place of business. A country of origin sticker must
also be present on all imports. Moreover, any claims of environmental sustainability or friendliness
must be backed up by substantial data or should not be used on the label or packaging.11
Regulatory/Licensing
A U.S. export license from the Department of Commerce may be needed depending on the
item to be exported, where it is going, and the end use. A change in these factors may trigger a
change in license requirement. The Export Administration Regulations are handled by the Bureau of
Industry and Security and deal mostly with commercial items but some have dual purpose of military
and commercial use. One must take care to ensure products are not shipped to restricted countries or
people by looking at the consolidated screening list. In order to determine if the product needs an
8 “AMB Country Risk Report.” AM Best. A.M. Best Company, Inc., 18 Aug. 2015. Web. 24 Feb. 2016
9 “What about Canada?” Canada. Web. 16 Mar. 2016. http://geert-hofstede.com/canada.html.
10 “Canadian ICT Sector Profile.” Innovation, Science, and Economic Development Canada. Oct. 2014. Web. 16 Mar. 2016.
http://www.ic.gc.ca/eic/site/ict-tic.nsf/eng/h_it07229.html.
11 “Export.gov – Canada – Labeling/Marking Requirements.” Export.gov – Canada – Labeling/Marking Requirements. Web. 16 Mar.
2016. http://apps.export.gov/article?id=Canada-Labeling-Marking-Requirements.
6. Dominic Capocelli
INTB-344
export license, one must know the Export Control Classification Number (ECCN). The ECCN is an
alphanumeric code found on the Commerce Control List and indicate the licensing requirements for
each item and their end destination. The first number in the code describes the category and the
ensuing letter describes the product group. Some commercial goods do not have an ECCN, thus are
designated as EAR99. However, these are usually low- level technology or consumer goods, so there
is reason to believe the Below the Hook Lift and Box Girder Beams do have ECCNs.12
After careful
examination of the Commerce Control Lift, possible ECCNs are as follows:
Beam Lead Bonders, stored program controlled equipment……………………..3B991.b.3.b
Composite (structural) production equipment, n.e.s……………………..….…….1B999.e
Composite (structural) production equipment………………………………..…….1B101
Steel, maraging………………………………………………………………………..1C116
Turning machines…………………………………………………………..………….2B201.c13
IV.
Industry Analysis
KTM`s products are broadly categorized as being in the engineering industry, but specifically in
the mechanical sector of machinery part 84.25-84.30 according to the trade statistics for international
business development.14
This industry includes civil products, electrical, oil and gas, mechanical,
chemical, mining, aeronautical, environmental, and computer engineering.15
There is a wide array of
uses for engineering products, but the U.S. has the highest and Canada the fifth highest imported
value of machinery part 84.25-84.30 according to the trade statistics for international business
development. Industrial products in Canada are usually distributed through a fairly short channel.
Typically, they move from manufacturer to the end-user, with “ninety percent or more of prospective
customers for industrial products are located in or near two or three major cities”.16
Trade shows are
also important in this industry with 269 building machinery trade shows planned for the future around
the world. These include some trade shows such as Cementex “International Exhibition of Cement,
Concrete, Manufacturing Technologies & Related Machineries” and Constro “International Fair and
seminars on Construction Machinery, Materials, Methods & Projects”.17
12 U.S. Department of Commerce. Bureau of Industry and Security. Web. 18. Mar. 2016. https://www.bis.doc_view/286-licensing-
faq.
13 “Export Administration Regulations (EAR). “Export Administration Regulations (EAR). Web. 18.
2016.http://www.bis.doc.gov/index.php/regulations/export-administration-regulations-ear
14“Trade Statistics for International Business Development.” Trade Map. Web. 30 Apr. 2016.
http://trademap.org/Country_SelProductCountry_Graph.aspx.?nvpm=1/124IIII8431III4I1I1I1I1II2I1I1
15“Engineering Work In Canada.” Prism Economics and Analysis. Canadian Council of Professional Engineers, 2003. Web. Mar. 2016.
http://www.ogrady.on.ca/Downloads/Papers/The Import and Export Of Engineering Work.pdf
16 “Export.gov.” Export.gov. Web. 30. Apr. 2016. http://apps.export.gov/article?id=Canada-Distribution-and-Sales-Channels.
17 “Trade Show Directory : Exhibitions, Conferences & Trade Shows Worldwide. “Trade Show Directory : Exhibitions, Conferences & Trade
Shows Worldwide. Web. Apr. 2016. http://www.eventseye.com/fairs/trade-shows-by-theme.html
7. Dominic Capocelli
INTB-344
Chart 2: Total Imports and Trade Partner. Source US Comtrade
Canada Engineering Industry
The United States has about a 48% share of Canada`s imports in this industry18
and account
for $46.8 billion in exports to Canada.19
Since the 1980s, the industry has seen roughly an 11% yearly
increase in import/export transactions. Additionally, the U.S. accounts for a large market share for
research and development. However, Canada traditionally, but not exclusively, tends to domestically
source for structure design and installation of conventional production machinery and equipment.20
Ultimately, the engineering services industry is strong and will continue expanding because of an
increase in demand due to spending on transportation infrastructure.21
Additionally, each province has distinct industry differences. Ontario seems to be the most
intriguing, as it is the “most concentrated province for plastic manufacturing…” and “hosts a wide
range of industry activity through several diverse segments.”22
Ontario also relies heavily on trade in
the Automobile Manufacturing Industry and “accounts for 59.3% of industry establishments…”23
18“Trade Statistics for International Business Development.” Trade Map. Web. 30 Apr. 2016.
http://trademap.org/Country_SelProductCountry_Graph.aspx.?nvpm=1/124IIII8431III4I1I1I1I1II2I1I1
19 “International Trade in Goods Bases on UN Comtrade Data. “International Trade in Goods Based on UN Comtrade Data. Web. Apr. 2016.
http://comtrade.un.org/labs/BIS-trade-in-goods/?reporter=842.
20“Engineering Work In Canada.” Prism Economics and Analysis. Canadian Council of Professional Engineers, 2003. Web. Mar. 2016.
http://www.ogrady.on.ca/Downloads/Papers/The Import and Export Of Engineering Work.pdf
21 “Engineering Services in Canada: Market Research Report.” Engineering Services in Canada Market Research. Web. 30. Apr. 2016.
http://www.ibisworld.ca/industry/default.aspx?indid=1403.
22 “Mapping Canada`s Top Manufacturing Industries – Media Center.” Media Center RSS. 2015. Web. Apr. 2016.
http://media.ibisworld.com/2015/01/22/mapping-canadas-top-manufacturing-industries/.
23 “Mapping Canada`s Top Manufacturing Industries – Media Center.” Media Center RSS. 2015. Web. Apr. 2016.
http://media.ibisworld.com/2015/01/22/mapping-canadas-top-manufacturing-industries/.
Pr Product Ode HS Code Canada
Below the Hook Lift 8426.12.00.00 Total imports:
$7,911,050
Trade Primary Partner: U.S.
Box Girder Beams 8426.11.00.00 Total Imports:
$16,199,810
Trade Primary Partner: U.S.
Source: ibisworld
8. Dominic Capocelli
INTB-344
V.
Competitor Analysis
Competition for KTM Engineering will include both American companies that are established in
Canada and Canadian companies with a reputation domestically. Competition will vary based on the
province, but some prominent competitors include Pacific Design Engineering (PDE), Mussell Crane
MFG., Bushman Equipment, INC., and Avon Engineering. These companies have the advantage of
reputation and the convenience of international experience. Bushman Equipment INC. is a part of
Avon Engineering, both having manufacturing facilities in Canada as well as in the United States near
the border. All of these companies provide custom design services as well as either box girder beams
or below the hook lifting devices. An advantage for Mussell Crane MFG. is that they also have their
own freight and installation division, with the ability to transport their products without middleman
fees. Avon also participates in technical organizations like the Canadian Standards Association
(CSA), which may be worth looking into. It is difficult to say what prices are being charged for certain
products, but all of the competition boasts quality and the ability to maintain partnerships with
customers. Since these competitors may have cost advantages, it will be important for KTM to
penetrate the market by proving its quality through exceptional advertising. KTM may be able to gain
market share by demonstrating that it exceeds U.S. standards, which are usually more stringent than
in other areas of the world.
VI.
Customer Analysis
KTM`s customers are not normal consumers. Its customers will include distributors,
manufacturers, or other businesses that have a need for Below-the-hook devices and box-beam
crane girders with sites that include power plants, factories, or warehouses. This is dependent on who
reaches out or who
inquires about
KTM`s services and
products. Luckily,
the U.S. and
Canada have a
strong relationship
in this industry, so it
is apparent that
there is demand
and abundance of
customers in need
of these products.
With increasing
populations and
growth of the
engineering
industry, there will
be a need for new
competitors in the
global marketplace
and KTM can Source: infoworld/media.ibisworld.com
9. Dominic Capocelli
INTB-344
expect to find new customers in Canada. Finding and maintaining customers will be crucial. There
have been trends of job losses in the industrial engineering sector in Canada due to realizations that
efficiency can be maximized with less workers and facilities.24
Economic stimulation can offset this,
but it is important for KTM to capitalize on its efficient practices and edge in innovation to overcome
its competitors and capture customers. Geographically, the majority of manufacturers are located in
Ontario, with more than 40% of employment coming from that province.
VII. Strategy Recommendation
Product
KTM boasts quality and innovation in its products, which will fit well in virtually any industry.
Thus, without prior experience or an established customer core across the border, it will be important
for KTM to prove the quality of their products. This will include looking into international standards in
addition to the standards that it already holds. Some international standards are ISO 1400
(International Environmental Management Guideline Standard) and ANSI/ASME Y14.1 and Y14.5
(international drafting standards for engineering drawings). Holding these certain standards will level
the playing field with competitors and allow a more adequate evaluation method against other
companies in the industry.25
Also, letters of documentation are not required for Canada.
Place
KTM will be looking to sell business to business and through distributors in Canada. Looking
into online sales may also be a good outlet, with advances and higher demand for technology in
business activities. The main idea will be to generate the designs and manufacture in the U.S., but
export to plants and warehouses in Canada that require the products through distributors using ports
in the U.S. and Canada.
Price
Since, Canada is a NAFTA country there are 0 duty rates on products originating in the U.S.
Canada also has GST taxes of 5% on most goods and services but this is typically paid by the
importer. HST taxes are value-added and act in place of a sales tax (GST) in Newfoundland, Nova
Scotia, and New Brunswick.26
The chain of action to minimize risk and documents needed to export
are as follows: Check the consolidated screening list, destination control statement, export clause,
country specific requirements (legalization of documents), attaining an export license based on the
Export Control Classification Number (pg. 5), insurance, labeling/ packaging requirements, security
considerations, and record keeping of all documents. The most suitable Incoterm for KTM will be
FCA, as this will allow the seller to ensure all pre documents are taken care of instead of relying on
the importer, which could result in delays. Also, FCA will allow KTM to save money on the shipping.
Promotion
KTM can initially work to promote itself on its website. First, by showing that its products
originate in the U.S. and that they comply with NAFTA standards for exporting. Another traditional
24 Tencer, Daniel. “Canada`s Industrial Jobs Disappearing Twice As Fast As U.S.`s: Report.” The Huffington Post. 2012. Web. Apr.
2016. http://www.huffingtonpost.ca/2012/01/13/canada-manufacturing-jobs_n_1204936.html
25 “About ASME Standards and Certification.” Standards and Certification. Web. Apr. 2016. http://www.asme.org/about-asme.org/about-
asme/standards.
26 Supplier Guide- Exporting to Canada.” Tubular. ArcelorMittal Tubular Products Canada Inc. Web. <ArcelorMittal Tubular Products Canada
Inc>.
10. Dominic Capocelli
INTB-344
technique is to attend trade shows. Canada has trade shows in all of its provinces and KTM can
introduce itself and explain why they are a great company to work with.27
Furthermore, it could be to
look into search engines and getting listed in their directories. Using Google or other search engines
could prove worthwhile because of the high level of traffic on the internet. “Yahoo Localworks” costs
$29.99 a month and other engines have similar prices and some are even free. Another possibility is
to promote publicity by writing an article about the company and sending it out to newspapers,
posting it online, or submitting it to potential customers. A final way to promote KTM would simply be
to contact potential distributors and customers to explain what the company does, its vision, where it
wants to be, and how it can help the potential customer succeed by working with KTM.28
27 “Trade Shows in Canada2016 – 2017.” Trade Shows Worldwide. Web. Apr. 2016. http://www.eventseye.com/fairs/c1_trade-
shows_canada.html/
28 Person, and Janet Attard. “32 Low-Cost Ways to Promote Your Business.” Business Know-How. Web. Apr. 2016.
http://www.businessknowhow.com/marketing/24waysto.htm
11. Dominic Capocelli
INTB-344
Works Cited
“About ASME Standards and Certification.” Standards and Certification. Web. Apr. 2016.
http://www.asme.org/about-asme.org/about-asme/standards.
“Alberta, Canada.” Marine and Ports. Web. 22 Feb. 2016.
http://www.albertacanada.com/business/overview/marine-and-ports.aspx
“AMB Country Risk Report.” AM Best. A.M. Best Company, Inc., 18 Aug. 2015. Web. 24 Feb. 2016
“Canadian ICT Sector Profile.” Innovation, Science, and Economic Development Canada. Oct. 2014.
Web. 16 Mar. 2016. http://www.ic.gc.ca/eic/site/ict-tic.nsf/eng/h_it07229.html.
Central Intelligence Agency. Central Intelligence Agency. Web. 18 Feb. 2016.
https://www.cia.gov/library/publications/the-world-factbook/geos/ca.html.
“Engineering Services in Canada: Market Research Report.” Engineering Services in Canada Market
Research. Web. 30. Apr. 2016. http://www.ibisworld.ca/industry/default.aspx?indid=1403.
“Engineering Work In Canada.” Prism Economics and Analysis. Canadian Council of Professional
Engineers, 2003. Web. Mar. 2016. http://www.ogrady.on.ca/Downloads/Papers/The Import and
Export Of Engineering Work.pdf
“Export.gov – Canada – Market Overview.” Export.gov – Canada – Market Overview. Web. 18 Feb.
2016. http://apps.export.gov/article?id=Canada-Market-Overview.
“Export.gov.” Export.gov. Web. 30. Apr. 2016. http://apps.export.gov/article?id=Canada-Distribution-
and-Sales-Channels.
Infoplease. Infoplease. Web. 18 Feb. 2016. http://www.infoplease.com/country/canada.html.
“International Trade in Goods Bases on UN Comtrade Data. “International Trade in Goods Based on UN
Comtrade Data. Web. Apr. 2016. http://comtrade.un.org/labs/BIS-trade-in-goods/?reporter=842.
“Mapping Canada`s Top Manufacturing Industries – Media Center.” Media Center RSS. 2015. Web. Apr.
2016. http://media.ibisworld.com/2015/01/22/mapping-canadas-top-manufacturing-
industries/.
Person, and Janet Attard. “32 Low-Cost Ways to Promote Your Business.” Business Know-How.
Web. Apr. 2016. http://www.businessknowhow.com/marketing/24waysto.htm
“Supplier Guide- Exporting to Canada.” Tubular. ArcelorMittal Tubular Products Canada Inc. Web.
<ArcelorMittal Tubular Products Canada Inc>.
