Cross-Border Hardware Success: Navigating Canadian and U.S. Regulations

This article summarizes key insights from the Hardtech Innovators Meetup held in Montreal in November 2024, featuring conversations with successful entrepreneurs Sam Rudolph (Staff PM at ecobee and formerly at dcbel) and Louis St-Pierre (Ora Medical)alongside cross-border experts JB Congy (EY) and Alexia Magneron (Osler).

Executive Summary

For Canadian hardware companies, expanding into the U.S. market represents both an unprecedented opportunity to scale and unexpected complexity. While geographic proximity and shared language might suggest an easy transition, the reality demands careful navigation of state-specific regulations, particularly in taxation and compliance. Recent insights from successful founders and cross-border experts reveal that success depends on three critical factors:

1. understanding the contract-centric nature of U.S. business relationships with very explicit forms of contracts
2. early integration of compliance requirements into product development
3. and, strategic market entry choices.

Companies like Ora Medical and ecobee demonstrate that starting with more demanding markets, while challenging, can create a stronger foundation for nationwide expansion.

The U.S. Business Playbook

The foundation of successful U.S. market entry lies in understanding fundamental business culture differences and similarities. Like in Canada, "contracts form the foundation of all business relationships in the U.S. market," explains Alexia Magneron from Osler. "They're not just legal documents-they're your first line of communication and your framework for establishing compliance expectations." This contract-centric approach becomes especially critical when addressing regulatory and tax implicationsEvery aspect of how a product is delivered, how it functions, and how subscriptions or maintenance are handled can modify tax obligations. As JB Congy notes, "Every operational decision has potential tax implications." Successful companies view their contracts as comprehensive blueprints, defining everything from day-to-day operations to compliance requirements across different states. This approach proves particularly valuable when dealing with complex supply chains or multi-state operations.

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The U.S. tax landscape presents unique challenges that can catch even experienced Canadian companies off guard. "Understanding state-specific requirements isn't optional-it's fundamental to market entry," emphasizes Alexia Magneron. Companies face three declarations per state across 45 states, with trigger points varying by product type. For tangible goods, tax obligations activate upon delivery, while services are taxed based on performance location, and intangible assets face taxation where they're used. JB Congy describes this as a "three-dimensional challenge," where compliance hinges on understanding state-by-state rules, automating processes, and managing resources effectively.

The complexity deepens when considering the disconnect between customs regulations and state-level sales tax requirements. "Tax obligations aren't tied to physical presence," Congy explains. "Once you hit the revenue threshold-often as low as $100,000 annually-you're responsible for compliance, regardless of where your company is based." This threshold arrives faster than many companies expect, making early planning crucial. To succeed companies need to address this early by evaluating their state-by-state exposure and investing in automated software solutions to manage compliance.

Market Entry Strategies

The journeys of dcbel and Ora Medical demonstrate distinct yet complementary approaches to U.S. market entry. Sam Rudolph, leading dcbel expansion in the energy sector, emphasizes the importance of ambitious vision and forward thinking. "You have to predict the future and think very ambitiously," she explains, "especially in hardtech where you're dealing with exponentially higher costs of change, production costs, geopolitical considerations, and physical logistics." Her team strategically chose California as their entry point, leveraging its complex but innovative market to validate their approach before expanding nationwide. "There was strong grassroots demand and a complex, innovative regulatory landscape so we knew if we could handle California, every other region would look easy." Sam concluded.

In the healthcare sector, Louis St-Pierre steered Ora Medical through a different set of challenges. The company's approach focused heavily on understanding regional market dynamics and building strategic partnerships. "A medical device priced at $8,000 might face significant resistance in Quebec, but find ready acceptance in the U.S. market," St-Pierre notes, highlighting the importance of market-specific pricing strategies. The key to their success lay in methodically building local partnerships and distribution networks while navigating state-specific healthcare regulations.

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Both leaders stress the critical importance of staying connected to the broader business ecosystem. While St-Pierre emphasizes the value of finding partners who share your values and attending industry conferences, Rudolph highlights the need to have a strategic plan/roadmap for certification and attacking regulatory requirements early. Their experiences underscore a common theme: success in the U.S. market requires not just product excellence, but also deep market understanding, strong partnerships, and strategic resource allocation.

Resources and Relationships

Government resources can play an important role, particularly in sectors like green technology and energy innovation. The Trade Commissioner Service (TCS) offers valuable resources for understanding sector-specific regulations, while Investissement Québec International provides specialized support for Quebec-based companies. For tax and regulatory compliance, working with experienced firms proves invaluable. EY's cross-border team specializes in managing state-by-state tax requirements, while law firms like Osler bring expertise in structuring U.S. operations.

Industry-specific resources also prove vital. The FDA's Division of Industry and Consumer Education (DICE) provides guidance for medical device companies, while the Consumer Technology Association (CTA) offers insights into standards across different states. "Don't get trapped in your development bubble," advises St-Pierre. "Stay connected with the broader community to identify relevant programs and opportunities."

Next Steps in Your Journey

As we enter 2025, the U.S. regulatory landscape continues evolving, particularly following recent political changes. While federal policies may shift around emerging technologies, state-level business regulations maintain stability. "Sales taxes remain crucial revenue sources for states, particularly in the South and Midwest," explains Congy. This stability in state-level regulations provides a reliable foundation for expansion planning, even as federal policies evolve. With the change in government, there is an expectation that some compliance burdens will be eased.

The path to successful U.S. expansion requires careful planning, strategic resource allocation, and building the right support network. To continue the conversation and learn more about navigating cross-border expansion, reach out to our team at info@garageincubation.com. Join our Hardtech Community Group on LinkedIn and subscribe to our Solid Ideas Newsletter 

About Garage&co: We support hardtech founders in their journey to build global companies. Through events like the Hardtech Innovators Meetup, we create opportunities for knowledge sharing and community building in the hardware innovation ecosystem.