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Northern Exposure

American entrepreneurs are finding success by heading for the border.
August 1, 2003
URL: http://www.entrepreneur.com/article/63274

Once scorned as a provider of commodities, comedians and little else, Canada has become increasingly attractive for entrepreneurs. In recent years, many small U.S. companies have begun moving parts of their operations to Canada or even relocating their entire businesses there. In the entertainment industry alone, the U.S. Department of Commerce believes hundreds of small and large American companies have outsourced tens of billions of dollars of TV and movie work to Canada over the past five years.

While the United States is struggling through a prolonged period of economic stagnation, Canada has recorded the strongest economic growth of any industrialized nation over the past two years-growth that makes it easier for companies in Canada to find customers, boost profits and build a capital base. Canada has grown so robustly that its finance minister has dubbed it the "Northern Tiger," and venture capitalists in Canada are more generous than their U.S. peers. "Companies there are able to invest money back into their operations, work with VCs and raise productivity," says Christopher Sands, senior associate at the Canada Project of the Center for Strategic and International Studies, a Washington, DC, think tank.

Recent SARS and mad cow scares haven't altered Canada's strengths: The Canadian government supports business by offering the most generous R&D tax credits in the industrialized world-credits that can go to foreign companies with operations in Canada. Canada's currency has remained weak relative to the U.S. dollar, an exchange rate that makes doing business up north cheaper. According to a recent study from real estate consulting service Site Selection Canada, citing figures from the Bank of Canada, the exchange rate would allow a U.S. company expanding to Canada to save 44 percent of costs over five years.

A 2002 study by consulting group Bearing Point Inc. revealed Canadian cities were among the least expensive urban areas in the developed world in which to do business. "When we bought out one Canadian company and moved many of our operations to Canada, we had five people working for us there," says Glenn Cleland, who owns Magna-Tech Manufacturing, a Muncie, Indiana, company with operations in Ontario. "Within a year, we grew to 40 employees and increased our profits fivefold." Canada's labor market is also a strong pull. "Property taxes are higher in Canada, but they have socialized health care, so as an employer, you hardly pay anything for health insurance-a huge part of your costs in America," says Cleland.