Читать книгу Why Mexicans Don't Drink Molson - Andrea Mandel-Campbell - Страница 10
Оглавление“Canada is the most comfortable country in the world. You are nice people, but you are not a trading nation.”
BORIS ROUSSEFF, EUROPE AN TRADE EXPERT
IT’S 3 PM and the patio of El Coronito restaurant in downtown Mexico City is quickly filling up with businessmen in dark suits and open-necked dress shirts meeting for lunch. The smog that normally hangs over the Mexican capital like a dusty grey-brown shroud has temporarily lifted to reveal a cloudless, azure sky. A bright white sun beats down on tables cluttered with bottles of pale beer and tequila shots, its rays refracting in the mass of glass and crystalline liquid, creating a dazzling glare.
Bruno Perron orders his usual michelada, a Mexican beer doused with chili and a squirt of lime, before reaching for a tortilla and filling it with a mixture of melted cheese and chorizo. If it weren’t for the slight French inflection in his otherwise flawless Spanish and the Quebec licence plate on the suv he drives like a demon through the city’s crumbling streets, he could easily pass as Mexican.
Originally from the small Quebec town of Thetford Mines, Perron moved south more than a decade ago. He had just finished university and had a job offer from a large mutual fund company. But somehow, perhaps after watching his hometown, one of the world’s largest producers of asbestos, go from boom to bust, he figured he needed a competitive edge over the three thousand other students in his graduating class. The much-vaunted North American Free Trade Agreement, NAFTA, was just being signed. The twenty-something figured that if he learned Spanish and got a handle on the Mexican market, it would give him an advantage when he eventually moved back to Montreal.
“Looking ten years ahead, I thought Mexico was going to be important,” says Perron. “Unfortunately, it is not as important as I thought it would be.”
Far from it. More than a decade after NAFTA was signed, the road paved into the dense, jumbled market is largely deserted. While Americans, Europeans and Asians have piled in to sell product to Mexico’s young and underserved population or outsourced manufacturing to take advantage of lower labour costs, Canadians have eschewed Mexico’s arid northern industrial parks and rutted city streets for the silky-white sand beaches of Cancún.
Canadian business, either baffled by Mexico’s seemingly inscrutable business culture, leery of corruption or dismissive of its still developing market, has largely opted out. While bilateral trade has tripled since 1994, Canada sells a scant 0.7 per cent of its merchandise goods to Mexico. As of 2005, Canada had invested a measly $3.1 billion, equivalent to less than 1 per cent of its worldwide assets7 and a drop in the bucket compared with the more than $130 billion in foreign investment that has poured into Mexico since 1994.
It is not as if the Mexicans didn’t want Canadian investment. In fact, as they launched the largest sell-off of state-owned assets in Mexican history in the late 1980s and 1990s, they actively courted Canadians. Modest, manageable and politically neutral, the Canadians offered a middle road between powerful American interests still tainted by a history of war, annexation and economic imperialism and the powerful clutch of Mexican families whose sprawling, interwoven conglomerates dominate the economy. But there were few bites.
One Canadian banker recalls how he was approached by a Mexican cabinet minister looking to unload a vast copper mine in northern Mexico. The government was anxious to keep the mine out of the hands of Jorge Larrea, a hard-nosed tycoon who already controlled a number of privatized mines and railroads. Canada seemed like an obvious candidate. “The minister told me price was no object,” said the banker, who set up meetings with Canadian mining companies Noranda and Falconbridge. “The Canadians didn’t even want to look at it,” he said. In 1991 Larrea acquired the mine — Cananea — turning it into a springboard for his company, Grupo México, which went on to buy mines in the United States and Peru and is now the world’s fifth-largest copper producer. As for Noranda and Falconbridge, they no longer exist, having been acquired in a $20 billion hostile takeover by Xstrata and subsumed into its sprawling empire.
In 2001, President Vicente Fox took the unusual step of inviting twenty Canadian energy companies to his private ranch in a bid to coax them into investing in the creaking Mexican energy sector. His country was ramping up its industrial production and was in dire need of new energy capacity. The Canadians, mid-sized and without the political baggage of the Americans, seemed like the perfect fit. “There were twenty guys at the ranch— and only three went in,” said Michael Stewart, former president of B.C.-based Westcoast Energy International and one of the guests.
Of the three, including Westcoast, only the Alberta energy utility TransAlta is left. “People view Mexico as a wild, unsophisticated country, but parts of it are much more sophisticated than Canada, and some parts are much better to do business in than some parts of Canada,” said Stewart from his Calgary office. “You would think people in this town should look there. You can fly to Mexico City in the same time it would take you to get to Halifax — and the food’s better. But it’s tough to get people interested— they’re put off by the bureaucracy, the language and the built-in biases of what they think they can and cannot do.”
It’s the same story in banking. Canada’s Scotiabank and Bank of Montreal (BMO) were among the first foreigners to make careful inroads into Mexico’s tumultuous financial sector. Mexico’s banks had been nationalized in the 1980s and then reprivatized in the early 1990s before a currency crisis in 1994 prompted the collapse of the entire financial sector. In a cautiously astute manoeuvre, BMO swapped Mexican sovereign debt in 1996 for a minority equity stake in Bancomer, the country’s number two bank. The move was expected to position BMO, which already owned Harris Bank in Chicago, as the pre-eminent NAFTA bank. Instead, at the height of a foreign feeding frenzy in the sector, including the massive us$12.5 billion purchase by Citigroup of Mexico’s largest bank in 2001, BMO pulled out of Mexico.
David Winfield, Canada’s former ambassador to Mexico, was on the board of Bancomer at the time. He tried to persuade BMO to buy the bank. “They could have done so much better, and so much better throughout the Americas. BMO was well positioned with Harris Bank in the United States, and Bancomer was exceptionally well positioned to do Hispanic banking.”
Instead, Tony Comper, BMO’s president and chief executive, “was persuaded it was too big a risk and too expensive,” says Winfield. “I think it was the wrong decision. But it required a visionary to see there was a business opportunity there.” Comper, who was tapped for the “Don Knotts Award for Meekest Ambition” by National Post Business magazine, sold out to the Spanish, who along with the Americans and the HSBC Group dominate the amazingly profitable sector, which boasts returns of over 20 per cent.
It is not as if there are no Canadian companies in Mexico. Scotiabank survived the currency crisis to see its wildly profitable Inverlat subsidiary, which represents just 6 per cent of the Mexican market, contribute 11 per cent to the bank’s bottom line. A number of Quebec companies, like Bombardier, Quebecor and Transcontinental, have also made the trek. In many cases, however, companies such as auto parts maker Magna “were dragged down” by their clients. Others tried, but were unable to penetrate the market. “When I compare the number of Canadian companies going through my office and the rate of success, it was very, very low,” says longtime Mexico hand and former Scotiabank executive Pierre Alarie. “We missed the boat everywhere.”
Troy Wright, former president of the Canadian Chamber of Commerce in Mexico and the managing director of Inverlat’s capital markets division, admits Canada’s track record has been patchy. “The Europeans— Spain, France, Italy — have been aggressive. It’s an attitude you don’t see in Canada. The U.S., when they see an opportunity, they attack,” says Wright. “Canadian companies take the cautious route or no route at all.”
To be sure, there are plenty of risks in doing business in Mexico, and Canadian companies are justified in being cautious. Although conditions have improved significantly, Mexico remains rife with corruption and its democratic institutions are still a work in progress. Yet, it is not the tenuous rule of law or language barriers that seem to most flummox Canadians. As Ambassador Winfield recalls a businessman telling him: “Why should I go to Mexico if I can’t even drink the water?” One Canadian government bureaucrat explained the dilemma this way: “How do we get Canadian companies more engaged in Mexico and not get diarrhea?”
ARMCHAIR TR AVELLERS
At first blush, the delicate constitution of Canadian companies seems incongruous with the country’s claim to be one of the world’s great trading nations. Despite representing 2.5 per cent of the world’s economy and just 0.5 per cent of its population, Canada is the world’s eighth-largest trader, a feat that has secured its place in the elite group of eight most-industrialized countries, the G8. Over the past two decades Canadian trade has expanded exponentially, from 44 per cent of gdp to 72 per cent, making it the most trade-reliant country of the G8.
But while some $1 million in merchandise trade criss-crosses the Canada–U.S. border every minute, cementing the world’s largest single trading relationship,* Canadian “trade” rarely ventures beyond the cozy confines of the northern United States. When it comes to the rest of the world, Canadians are armchair travellers, rarely roused from the familiar contours of the “intramestic” American market to seek their fortune in foreign lands.
Canadians may be trading with, and investing in, the rest of the world more than ever before, but the record to date reveals, if anything, that they are the antithesis of true traders. In every major market from Brazil to China, Canada is facing ever-widening trade deficits as its market share continues to erode under the strain of increased global competition. In 2005, Canada racked up a record $44 billion trade deficit with the rest of the world, and with the odd exception of countries like Lebanon and Sri Lanka, its only trade surplus was generated from just a single country: the United States. As Pierre Alarie, a Canadian veteran of international markets, observed: “If Canada were beside Bosnia instead of the United States, we’d all be bankrupt.”
When it comes to foreign direct investment (FDI), Canada musters the lowest level of outward-bound fdi in the G8 and remains largely absent from the current global push into developing markets. While it’s true that Canada is now a net exporter of fdi for the first time in its history, it’s also true that the third-largest recipient of Canadian foreign investment is Barbados, an offshore tax haven and post office box for dozens of Canadian banks and insurance companies.* According to Statistics Canada, an estimated $88 billion, close to a quarter of Canada’s overseas investment, is parked in similar tax havens in Ireland, Bahrain and the Caribbean.8
“Canada’s trade and investment market share has been falling, falling, falling, year after year, with few exceptions, since the end of the 1970s,” says Glen Hodgson, chief economist at the Conference Board of Canada. The dismal showing comes as little surprise to the rest of the world, which by now has become resigned to Canada’s cursory attempts at international business and seeming unwillingness to wade in and take the time and energy to actually cultivate trade. “You are nice people,” says Boris Rousseff, a European businessman who has worked closely with Canadian companies, “but you are not a trading nation.”
A quick tour of world markets reveals Canada’s declining and increasingly peripheral position. In Europe, long considered a second home for Canadian goods and investment, “Canada’s turn seems to have passed,” says one European diplomat who has worked to enhance two-way trade. Canada’s share of European Union (EU) imports declined by a third between 1990 and 2002. While Europe has been a beachhead for some of corporate Canada’s most aggressive international forays, including Alcan’s $4 billion acquisition of French aluminum giant Pechiney in 2003, Canadians on the whole have taken a laissez-faire attitude to Europe. As the Americans and Japanese scramble for position and the eu becomes increasingly preoccupied with its growing membership and the rise of China, Canadian companies have hung back like awkward teenagers waiting to be asked to the prom. Europeans, as a result, are often left scratching their heads, wondering why the Canadians bother showing up at all.
“Canadians are perceived as very friendly, but we don’t know what they are up to. What are they here for? What do they want to achieve? They don’t make any effort. They wait, like in the old days when women expected to be approached by men,” said one European businessman. “Things have changed. Even women don’t go for that anymore.” Apparently, neither do the Europeans. “We can tolerate that attitude from the U.S., but not from an average-sized country like Canada. You are bound to lose.”
Nowhere is Canada’s losing record more evident than in Latin America. In a rare burst of foresight, the Canadian government led a series of Team Canada trade missions to the up-and-coming region in the early 1990s in a bid to pre-empt American hegemony by parlaying Canadian goodwill into a first-mover advantage. As a result, Canada signed a free-trade agreement with Chile in 1996, six years before the United States did. Nevertheless, Canadian exports to Chile have stagnated to 1994 levels, as they have in almost every country in the region.
At the same time, Canada’s trade deficit has grown. All told, it exports less than 1 per cent of its merchandise trade to South America and the Caribbean. The lacklustre trade has been mirrored by a mass exodus of some of Canada’s biggest companies, including Bell Canada’s (now defunct) international wing, bci; Quebec cellular group Telesystem International Wireless; Alberta pipeline companies Nova Gas and TransCanada PipeLines; and even Scotiabank in Argentina. Many left the region with their tail between their legs.
Canada’s biggest retreat has been in Brazil. Exports to the sprawling country have been declining since 1997 as a $300 million trade surplus was converted into a $2 billion deficit in 2005. Sales to the world’s fifth-most-populous country represent just a quarter of 1 per cent of Canadian exports.
James Mohr-Bell, executive director of the Brazil–Canada Chamber of Commerce, says two-way trade, while edging up in favour of Brazil, remains “ridiculously low.” The Brazilian businessman has watched in frustration as Canadian companies remain “on the sidelines” while other foreigners, shrugging off currency devaluations and political volatility, have snapped up privatized state assets and invested in infrastructure projects. Although Canadian direct investment has cautiously expanded from $6.7 billion in 2000 to $8 billion five years later, overall foreign direct investment in Brazil has ballooned from us$40 billion in 1992 to over us$236 billion9 a decade later. “Canada has lost a lot of position. It used to be the sixth- or seventh-largest investor in Brazil, now it’s twelfth or fifteenth,” says Mohr-Bell. “As far as Canada is concerned, Brazil has just been forgotten, left aside. It was never exploited by Canadians to its potential.”
But perhaps the most worrying omission in the Canadian trade calculation is Asia. By mid-century, the region is expected to be home to three of the world’s six largest economies, yet Canada is barely a footnote in what is being touted as a historic changing of the economic guard. Canada’s share of Asian imports has almost slipped off the charts, from 2.88 per cent in 1988 to 1.06 per cent in 2004 in the wake of near-negligible exports and ballooning trade deficits. In 2004, Canada trailed Chile as the eighteenth-largest foreign investor in Southeast Asia.
While shrinking exports to Japan, a long-time trading partner, and Korea are cause for worry, it’s the seeming indifference to China that’s most alarming. As the world scrambles to feed China’s ravenous economic appetite, Canada directs less than 2 per cent of its exports to what has been the globe’s fastest-growing economy for the past decade. Not surprisingly, Canada lags behind every other major country in export growth to China.10 In fact, in the first half of 2006, exports actually contracted by 8 per cent compared with the same period in 2005.
Canada’s meagre and diminishing share of Chinese imports is matched by minuscule direct investment. By 2005, Canadian investment in the world’s most populous country barely topped $1 billion, representing 0.2 per cent of all Canadian investment abroad and nowhere near the $11 billion of Canadian money socked away in the Cayman Islands. At the same time, foreign investment in the Middle Kingdom has shot up by a phenomenal us$356 billion11 between 2001 and 2006.
The anemic performance even caught the attention of James Wolfensohn, the former president of the World Bank. During a speech at the Montreal Board of Trade Conference in 2004, he carefully admonished the country for not taking “as significant advantage of that extraordinary market as you might.” Howard Balloch, Canada’s former ambassador to China, is decidedly less diplomatic in his assessment of the country’s limp efforts. A trace of impatience ruffles his otherwise cool, bow-tied demeanour when asked why Canada still lingers at the water’s edge while the rest of the world takes the plunge.
“The Japanese recognize their presence in China is vital to their own economic existence. They are huge investors. The Germans are all over China. General Motors is investing billions. Where are the auto parts companies? This is supposed to be our flagship industry. There is a housing boom and heavy demand for wooden flooring — where are Canadian forestry products? The Scandinavians are bringing in their wood and wood from Siberia and making furniture and shipping it to North America. Where are our furniture companies?” says Balloch. “Look where we are supposed to be strong in Canada. Why are we not there?”
A MATTER OF PERSPECTIVE
That question is at the very heart of this book. The next few chapters deal with the reasons why Canadians so often fail to make the leap from hometown success to global conquest. The answer is a complex one, the product of a unique confluence of history, geography and culture that has made a powerful impression on our collective imagination. At its most elemental level, it’s about perspective.
Canadians seem to view the world through a fish-eye lens. Their immediate surroundings are dramatically overemphasized, to the point of distortion, while the backdrop — the outside world— appears dwarfed and distant. But just like the view from a fish-eye lens, the extreme wide angle is an optical illusion, fashioned through the careful engineering of optics and lenses to trick the mind’s eye. And we’ve been fooling ourselves in this way for a long time.
The effect can perhaps best be observed in Vancouver. Nowhere in Canada does the country’s natural bounty loom so large. The city’s downtown boardrooms offer panoramic views of majestic mountains, lush forests and shimmering bays. The gaze of Vancouver, a coastal city with a natural harbour, is cast away from Canada, towards the Pacific Ocean and the Orient beyond. Yet the “Gateway to Asia” appears truncated, its wide, luxuriant pathway suddenly subsumed into a blurred, distant horizon.
Despite the phalanx of glass and steel high-rises crowding the downtown skyline and a bustling port, Vancouver is essentially a “bedroom community,” says John Wiebe, head of the globe Foundation, an international consulting group, and the former president of the Asia Pacific Foundation of Canada. British Columbia, while leading the country in exports to Asia, remains among the least export-oriented provinces in Canada.* Why? Because the West Coast, like much of Canada, has never had to adjust its depth of field. As long as the foreground was in focus, the backdrop wasn’t all that important.
Michael Novak, an executive vice-president with Quebec construction giant SNC –Lavalin, calls this phenomenon “the Canada syndrome.” Its origins and continued propagation can be traced to two key factors: an abundance of natural wealth that provided Canada’s tiny population with one of the highest ratios of natural resources per capita in the world; and the United States. Taken together, these two factors form the basis of a quick and easy trading recipe that some argue would spoil any cook from tackling more ambitious confections.
Some 85 per cent of Canadian-made goods need travel no farther than a few hundred kilometres, into a market that is often no more difficult to trade with than some Canadian provinces. Without the natural barriers of language, culture or distance, an estimated 90 per cent of Canadian exports to the United States are shipped to buyers on an open account, without a contract. “We’ve had it easy. We’ve got lots of resources that we could sell easily to a market that spoke English and was close by,” says Carin Holroyd, senior research analyst at the Asia Pacific Foundation of Canada in Vancouver. “We haven’t had to work very hard.”
What makes it even easier is that Americans and other foreigners are doing most of the heavy lifting for us. Historically Canada has one of the highest levels of foreign ownership in the developed world,12 with more than half of its manufacturing base and 42 per cent of its oil, gas and coal mining industry currently in foreign hands.13 According to a Statistics Canada study, foreign affiliates represent just 2 per cent of all Canadian-based exporters yet account for an incredible 44 per cent of all exports. Of that, some 70 per cent is intra-industry trade — goods of a similar nature that are being imported and exported.14
What does that mean? That Canada’s three leading “exporters” are the Big Three American car manufacturers — General Motors, Chrysler and Ford — which manufacture cars in southern Ontario and ferry them across the border. In Ontario, Canada’s most export-oriented province, 53 per cent of exports are generated by foreign affiliates.15 The automotive industry represents nearly a quarter of the country’s total merchandise exports. “If you take out automotive,” says Bob Armstrong, the former president of the Canadian Association of Importers and Exporters, “what are we really selling?”
In a word — commodities. While more sophisticated Canadian exports of things like software and airplane parts have grown over the past two decades, more than half of the nation’s foreign sales still come from oil and gas, lumber, chemicals, fertilizer, grains and potash. Unlike value-added manufactured goods, which must be actively peddled and pushed into new markets, commodity prices are largely set by world markets, and the buyers, more often than not, come to you. Take Canadian exports to Japan, for example: an estimated 75 per cent of this trade is controlled by Japanese trading houses with offices in Vancouver and Toronto. Those same trading companies are also behind much of Canada’s trade with China — and even China’s state grain trader has an office in Vancouver. “There aren’t many Canadians actively seeking a market,” says John Wiebe. “Commodities are so hot, you don’t have to sell. If you’ve got pulp, there’s a buyer at your door. Our companies don’t have to go out and spend a lot of time in China. You don’t see the commodity guys out there very much peddling product, and we don’t sell a lot of other stuff.”
As a result, between cars, commodities and the U.S. market, Canada not only never has to go the extra mile to sell its goods, but is caught in a strange paradox, wherein, as Carleton University trade guru Michael Hart points out, “Canada has become a trade-dependent economy without a deep-seated trading culture.”16 With the rest of the world knocking on their door, says one government trade promoter, Canadians could afford to remain “nice and kinda dozy,” eschewing the hardscrabble edge of hungrier, less-endowed countries while never being forced to develop a homegrown global trading base.
“We are major traders, but not really. We are really sellers into the global marketplace,” says Jayson Myers, senior vice-president and chief economist of Canadian Manufacturers & Exporters. “What’s the difference? Sellers are just told how much to produce and the market is made for you. A major trader is out there developing his own market. We don’t have a lot of companies doing that in Canada.”
Myers estimates that with 60 per cent of Canada’s trade being intracorporate and 30 per cent taken up by energy, raw materials and commodities, only 10 per cent of the economy is made up of companies with the impetus to actively develop markets. The problem is, they are overwhelming small and medium-sized enterprises (SMES), which lack the financial stamina to withstand expensive international forays and the motivation or mindset to manoeuvre in more complicated foreign markets.
In fact, most smes do not even think about exporting. According to a poll taken by the Canadian Federation of Independent Business in 2004, an astounding 51 per cent of respondents didn’t sell abroad because their products or services were “not exportable.” A report by the Toronto-Dominion Bank quickly jumped on the finding, asking: “In this day and age, what isn’t a global product?”
All told, less than a fifth of small businesses, which account for 99 per cent of all Canadian companies, actually export. Even fewer do so regularly. Myers calculates just 3 per cent of smes are “active exporters,” engaged in producing and servicing goods in and for foreign markets. According to Statistics Canada, a meagre 1.5 per cent of small business exporters account for 75 per cent of all exports by smes.17 In other words, the vast majority of sme “exports” are one-off, opportunistic and usually unsolicited sales, worth a few thousand dollars at most. For many companies, concedes one business owner, exports are just “extra gravy.”
In the absence of a sustained and focused export strategy, companies tend to take a haphazard, scattershot approach to international business that rarely hits the bull’s eye. Two key challenges seem to particularly plague Canadian firms: a failure to follow up on new business leads, and an almost debilitating aversion to risk. Both are anathema to operating in globally competitive markets. Canadian companies, says Michel Charland, director of Industry Canada’s International Trade Centre in Montreal, “lack the preparation, the vision and the commitment” to venture into the choppy seas of international business.18
When they do venture forth, the results tend to be disappointing, both for Canadian companies and for many foreigners who, given the choice, would prefer to do business with Canadians. Instead, the tepid and at times amateurish approach has left many perplexed and even irked by Canadians’ stubborn insistence on being the wallflowers of international business. “At home they are as efficient as Americans, but when they go abroad and are doing international business, they are shy, withdrawn and inward looking,” says Boris Rousseff, who as executive director of the Canada Europe Round Table for Business has worked for two decades trying to better familiarize Canadian companies with Europe.
But while some foreigners interpret this indolent attitude as laziness or even arrogance, others insist it is a mask to deflect the colonial mindset that still pervades Canadian thinking and colours the nation’s ambitions. Weaned on the British Empire and then overshadowed by the United States, Canada has spent most of its young existence trying to convince a vast and disparate Dominion that it too has a manifest destiny. Still ill at ease in the makeshift union and too preoccupied with its own reflection, the country seems to lose its conviction when it strays too far from home. “We are timid about nationality, and [therefore] we are timid about trade,” says Michael Novak of SNC –Lavalin, the country’s only global engineering and construction firm.
Many people involved in international business pin at least part of the blame on an overweening government that has often been the only common connection in the country’s bid to become more than an expression of geography. Like an overprotective parent, the state has nurtured dependence and sheltered business from risk, often throwing up obstacles that discourage companies from spreading their wings, either by weighing them down with burdensome regulation or by protecting them from competition.
When companies do fly the coop — often at government urging — their path has been paved with government funding to pay for everything from plane tickets to hotels. In many cases the money was ostensibly a loan, but both parent and child knew it did not have to be repaid. In recent years, the federal government has become stricter with the purse strings, but behavioural patterns and expectations, ingrained over decades — sometimes centuries— remain largely unchanged.
At Ontario Exports, the export promotion arm of the provincial government, potential exporters are shepherded across the border on trade missions to Buffalo. While on these exotic trips, companies expect the government to find contacts, set up meetings for them and even pick up the tab. “We call it handholding,” said one official, recalling a junket to the southern United States to attend a trade fair. A month later, the provincial official received an angry call from an American distributor who had been trying to contact two Canadian companies that attended the fair. Frustrated after they did not return his repeated calls and emails, the American phoned the provincial government and asked: “Are you guys serious about doing business or not?”
COASTING TO IRRELE VANCE
“Not so much,” seems to be the answer. And why should Canada be concerned? It has done fairly well by mining tried-and-true veins of wealth and opportunity. By cutting down trees, pumping oil and assembling cars, the country has attained one of the highest standards of living in the world. Do we really need to be jumping on planes, eating strange food and scarfing down Imodium pills to drum up more business?
According to Thierry Vandal, the chief executive of Hydro-Québec, we don’t. In the 1990s, the government-owned utility made an aggressive push into Asia, Africa and Latin America, but despite its domestic know-how, the costly venture floundered and its newly minted international division was disbanded. Luckily, the utility, which boasts the largest installed capacity of hydroelectric power in the world, has enough work in Quebec to keep it busy for the next fifteen years. “You don’t chase the hard stuff if there’s easy stuff. You pick low-lying fruit first,” says Vandal. “We don’t need to be chasing international at this stage. That’ll come in maybe twenty or thirty years.”
Vandal says he’s “not convinced” that putting off foreign forays by a few decades will put Hydro-Québec at a disadvantage to global rivals like Germany’s E.ON and Gaz de France, whose tentacles already stretch around the globe. Maybe. But what if he’s wrong? As of 2005, Quebec had become a net importer of energy. What if the utility’s copious projects were suddenly put on hold, let’s say by environmental concerns or opposition by Aboriginal groups, in much the same way as its Great Whale project on James Bay was stalled in the 1980s? And don’t forget that Hydro-Québec is the most indebted company in Canada, with $32.5 billion in long-term debt.19
Would the state-run utility know how to operate in an international context? Its less than stellar performance outside of Quebec would indicate that, at the very least, it would be at a disadvantage in a global market that is not only getting more and more competitive but is dominated by countries and companies that conduct business in a vastly different way from Canada and the United States. With just fifty companies in Canada accounting for half the country’s exports20 and little in the way of foreign investment, one could argue that the great majority of Canadian companies are in the same boat.
Joseph E. Martin, an executive in residence at the University of Toronto’s Rotman School of Management, likens the situation to the historic 1972 hockey series that pitted Canada against the Soviet Union. The Canadians, who fancied themselves the best players in the world, were surprised to find that their blunt force and power could be so easily deflected by the discipline and dexterity of the Russians. What was expected to be an easy win turned into a hair-raising comeuppance for the Canadians, who only barely squeaked to victory with a last-minute goal. “We have a wrong sense of what is going on [in the world] because we have never tested ourselves against the rest,” says Martin. “You need to be out there testing yourself and competing. Otherwise, you won’t know how good the other guys are.”
We are already starting to find out. In the United States, Canada’s share of imports has been steadily declining from 19 per cent in 1999 to 17.2 per cent in 2005 as exports from China flood into the American market. In contrast, China’s share of U.S. merchandise trade has skyrocketed from 3 per cent in 1990 to 14.6 per cent in 2005. Already the second-largest exporter to the United States after edging out Mexico, China even temporarily pushed Canada out of top spot in July 2005.* It is only a matter of time, say observers, before Canada is permanently unseated as America’s biggest trade partner.
China’s rising prominence in the United States is perhaps the most tangible indication of its emergence as a global powerhouse and its pivotal role in the ongoing revolution sweeping the global economy. The World Bank estimates that by 2050 the developing world will represent 40 per cent of global gdp, up from 18 per cent.21 Goldman Sachs, the U.S. investment bank, predicts the future membership of the G8 will be almost unrecognizable from the current line-up: Brazil, Russia, India and China will eclipse all other major industrial countries in size, with the exception of the United States and Japan.22
In this new scenario, the United States will no longer be the global behemoth that it has been. As David Emerson, Canada’s then minister of industry, noted in 2005: “It’s slowly dawning on most of us that something we took for granted for decades — the global dominance of the United States — is under threat.”23 That does not bode well for Canada. Between 1993 and 2004, the vast majority of new export growth — more than 92 per cent— went to the U.S. market.24 At the same time, if it weren’t for energy and cars, Canada’s enviable trade surplus with the United States would quickly evaporate.†
As the United States seeks greater trade ties with the rest of the world— it now has free-trade agreements with at least seventeen countries — and more competitors gain the field, Canada, a small, trade-dependent country with scant on-the-ground experience, will have little alternative but to bone up on Mandarin and maybe start returning some of those unanswered phone calls. “At some point we will have no choice but to go out. There is a huge chunk of the world we know nothing about,” says Prem Benimadhu, a research director with the Conference Board of Canada. “The growth will be in Asia, and they have a different way of doing business.”
But while those involved in international business see the writing on the wall, they are not convinced that the vast majority of Canadians are getting the message. Back in Vancouver, trade commissioner Bill Johnston has his doubts. From his corner office, the veteran federal trade commissioner surveys the sparkling high-rises and ocean beyond with an air of blithe resignation that betrays his disappointment. For years he has been trying to coax Canadian companies to trade in their cushy domestic berth for more distant shores.
“They call it the sailboat mentality,” shrugs Johnston. “Why would you get on a plane and fly halfway around the world to have tea with a bunch of strangers when you could spend the weekend on your sailboat or at the cottage?”
Across the country, Stanley Hartt’s Bay Street office in Toronto affords a very different view. His exclusive eleventh-floor perch looks out on the glass and steel towers that form the vertebrae of the country’s financial spine. But the Montreal-born lawyer, former deputy finance minister and now chairman of Citigroup Global Markets Canada is gripped by the same sense of foreboding. Every day, he says, Canadian companies pass up opportunities to trade and invest just across the border in the United States — never mind Asia.
“We have a chance to buy large U.S. companies and we don’t. We think it’s too big and we don’t want to bet the company, so we tend to creep back to the Canadian market. It’s a market we know and feel comfortable in, and we’re not hard pressed,” he says. “We are very happy to coast. There’s such abundance here, we’ve decided to pump it out and sell it. Who needs to do value-added when you can just stay home and have a nice life?”
The pervasive sense that “everything will be okay” has even raised alarm bells in slow-moving, navel-gazing Ottawa. Within the well-insulated offices of the bunker-like Lester B. Pearson building — home to the ministry of foreign affairs and international trade — senior bureaucrats have coined a phrase to describe the growing danger of continued unconcern: complacency risk.
Nowhere has that risk become clearer than in the case of Japan. The world’s second-largest economy, the Land of the Rising Sun has been a target of Canadian efforts to diversify trade for nearly half a century. Those efforts reaped little return, until a housing boom in the 1980s sparked a massive demand for Canadian lumber. Canadian exports, led by wood products, peaked at $13 billion in 1995 before a banking crisis in Japan plunged the country into a decade-long recession. Canadian sales to Japan followed suit, contracting 26 per cent in the last decade.25
It is easy to blame Japan’s economic woes for the precipitous decline. But while forestry products companies turned their attention to the thriving U.S. market, the Swedes, Finns, Russians and Southeast Asians have been filling the void the Canadians left behind. By 1997, the Scandinavians, with only a couple of years in the Japanese market, were exporting 1.8 million cubic feet of lumber — a feat that took their Canadian counterparts decades to achieve.26 As a result, Canada’s share of Japanese imports is half what it was in 1989. “We could have been raising exports all along, but instead we turned away,” says John Powles, a Vancouver-based trade consultant. “Nobody ever thought of turning around our advantage and developing a strong sales team. So the Japanese went elsewhere. And we let it happen.
“We could have been much more competitive if we had put the effort in,” adds the long-time Japan hand. “But the U.S. was strong, so we shrugged our shoulders. Then the softwood lumber dispute with the United States happened, and the Japanese market was lost to Scandinavia.”
Canada appears set to suffer a similar fate in Europe, the country’s only other significant export market outside the United States. Its declining market share is being eroded by the addition of twelve new member countries to the EU. The new entrants, many of whom have low labour costs, educated populations and undeveloped resources, compete head-on with Canadian goods, ranging from lumber to car engines. Many predict that without a concerted effort, Canada will be completely cut out of the EU. “Trade is going down,” says transatlantic trade consultant Boris Rousseff. “Canadians would have to make an enormous effort to change the tide. Or they can just sell 100 per cent of their goods to the U.S.”
As Canada has already learned the hard way — softwood lumber and the ban on Canadian live-cattle exports are the most recent examples— complete reliance on the United States is neither smart nor sustainable. “I don’t think we can live off the U.S. forever, and it’s very dangerous to think we can,” says Lorna Wright, an associate professor of international business at York University’s Schulich School of Business. “As a country you need to be diversified. If an individual company is at capacity, selling all its widgets to Buffalo, that’s fine. But as a country, if all your companies are selling all their widgets to Buffalo, then Buffalo can hold you to ransom.”
A NEW MAGNE TIC NORTH
For many observers Canada, inadvertently or by omission, has already decided its fate. Without the disposition, appetite, marketing skills or, in many cases, the companies to go global, Canada is simply not cut out to be a global trader. “Canadians are not equipped to work on the world stage,” says Edy Wong, director of the Centre for International Business Studies at the University of Alberta’s School of Business. Fred Lazar, professor of strategy at York University’s Schulich School of Business, concurs: “We are able to survive because the market has been given to us. The U.S. is easy and close. We haven’t developed the links elsewhere, and we don’t know how.”
Others fervently believe that Canada can and should have a place at the global table. Some are battle-hardened trade veterans who, despite years of disappointment, stubbornly refuse to give up hope. Some are Canadian professionals, entrepreneurs and chief executives who have gone abroad and flourished. Some are new Canadians, who, grateful for the country’s stable business climate and still hungry, see opportunities instead of obstacles. “The world should be our oyster,” says Ian Mallory, a Calgary-based venture capitalist. “Until now it’s just been easier to do nothing, live off the taxes from our natural resources, work 9 to 5 and go to the cottage.”
Canada has been chewing on this particularly gristly tidbit of truth for decades. Prime Minister Pierre Trudeau’s infamous “Third Option” of the 1970s was the outgrowth of half-hearted efforts to wean ourselves off the United States and expand our trade ties with the rest of the world. For the most part, however, our global coming of age has yet to be realized — paralyzed, it seems, in a kind of arrested development. But, as I will argue in this book, the Third Option, if it’s done right, is not the chimera it has come to represent.
Given what Canadians have been able to achieve at home, in such a harsh and unforgiving climate, going abroad is eminently doable. If we can build ice roads across hundreds of kilometres of barren, treeless tundra that are able to withstand the merciless pounding of thousands of transport trucks as they make their way from Yellowknife to the diamond mines just south of the Arctic Circle, then we can do anything. It’s a matter of first wanting to, and then familiarizing ourselves with the new topography.
But if we are to get our proper bearings, we will need a new compass, one that is more accurately attuned to the global marketplace. This new compass must be able to adjust for distortions in the domestic economy that often throw off our readings of global competition. It must also include a recalibrated Third Option, one in which trade with the rest of the world is not meant to temper Canada’s reliance on the United States but exists on its own merit and for its own sake. By this measure, international trade and investment is the new magnetic north.
Practically speaking, that means not only significantly increasing the number of companies involved in international business, but also enhancing the quality and quantity of that business. It’s a problem that goes beyond small and medium-sized enterprises. According to Canadian Business magazine, the country’s top 500 listed companies generate a minuscule 1.91 per cent of their revenue from foreign markets.27 “We just don’t think in a worldly way,” says Bob Armstrong, a former president of the Canadian Association of Importers and Exporters. “We need a shift in attitude.”
That shift entails more than simply making the leap from the United States to the rest of the world. It also requires a fundamental rethink of how to conduct business abroad. “We don’t have a vision of the world that lets us think outside the box,” says the Conference Board of Canada’s Prem Benimadhu. If companies and government are to avoid repeating past failures, they will have to approach overseas markets with a new understanding and respect, as well as have a strategy in place that capitalizes on their competitive advantages. “If ever there was a time for Canada to have both a North American strategy and a long-term, non–North American strategy, it is now,” writes Wendy Dobson, professor at the University of Toronto’s Rotman School of Management.28
If not, Canada will be forced to contend with the flip side of complacency risk: irrelevance. Stanley Hartt fears it is already happening. He recalls flying down to New York in 1998 to see whether Salomon Smith Barney’s corporate chiefs would be interested in acquiring Nesbitt Burns, the investment banking and brokerage arm of the Bank of Montreal, which would have likely been spun off if a planned merger between BMO and the Royal Bank were to proceed. Salomon’s management immediately dismissed the suggestion as “crazy.” Why would they bother buying a Canadian broker with a return on investment of 15 per cent, they asked, when they could get 25 per cent in emerging markets?
“When the leading financial institutions talk about countries in which they are making investments and building and growing, Canada is not on the list,” says Hartt, noting that foreign-ownership restrictions on banks and insurers are a large part of the problem. “The real danger is when foreign investors say, ‘Why do we bother with Canada?’”
Back at El Coronito in Mexico City, the sun’s white glare highlights the green flecks in Bruno Perron’s hazel eyes. It’s so bright, waiters scramble to unfurl a patio awning dusty with the accumulated detritus of a large, teeming metropolis. The Quebec native absent-mindedly brushes off the flakes of grit that drift down onto our table. He, like others who have ventured down here, has gotten used to seeing beyond the city’s smoggy veil.
At the age of thirty-eight, Perron now heads up his own multi-million-dollar import–export outfit with offices in Canada, Vietnam, Hong Kong, Shanghai and India. When asked what advice he would give his fellow Canadians, Perron contemplates his chili-spiked beer for a moment before taking a swig. “Wake up,” he says with an air of exasperation.
* Canada–U.S. trade represents the world’s largest cross-border exchange between any two nations, but trade between the United States and the European Union is larger.
* Barbados, Ireland and Bermuda hold the third, fourth and fifth spots respectively for top Canadian investment destinations, followed by France and the Cayman Islands in the sixth and seventh positions.
* Only Prince Edward Island and Nova Scotia fare worse.
* This calculation is based on the European Union being treated as separate countries rather than a single bloc.
† In 2004 Canada racked up a record trade deficit of $11 billion in automotive trade with non-NAFTA countries.
