SUMMARY of International Business topics

2008 Oct 27th, Prof. Richardson created a 9 minute video which summarizes the main points of this webpage.  Students are encouraged to view the video first, then scroll down the webpage to read the summary. For students in BUS106 at Seneca, this webpage serves as a summary of the main points in Chpt 6 of the text BUSINESS: IT'S NATURE AND ENVIRONMENT;  6th Canadian Edition

All Business is International Business

The reason we say that "All Business" is "Int'l Business" is that we mean all business, even domestic companies that do not directly exporting or import, are effected by international circumstances which can positively and negatively effect their business performance.
 
 

All  Business  is International Business

. We can find many examples of "All Business" is "Int'l Business"  but for the sake of humour & hunger, we will use the example of Harvey's Hamburgers - a Canadian hamburger chain that was founded the same year as when the professor of this course was born. Harveys is part of a corporate group that is owned by Cara Operations Ltd. Cara also owns Swiss Chalet, Second Cup, Kelsey's, Montana's, Milestones and Outback Steakhouses When Cara held its AGM July 24th, 2003 it noted that profit dropped 50%. One of Cara's biggest business is supplying the in-flight meals of Air Canada. The airline industry, worldwide, has been very bad since Sept 11 and was also effected by SARS in mid-2003. Add to this the American ban on Canadian beef because of the "one case" of mad cow disease in Alberta, and these factors all have effected Cara's seven restaurant chains.

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All  Business  is International Business

As reported in The Toronto Star "sales at Harvey's fared badly as the fast-food burger concept coped with the mad cow scare and increased  competitive pressures. System sales fell 4.2 per cent to $62 million, while same restaurant sales fell 3.4 per cent. Six  restaurants closed in the quarter. The company ended the quarter with 339 Harvey's."   . What can you do to help this great Canadian company? - before coming to class, go to Harveys - or, better yet, bring Harveys to class and share ;-). WTGR .

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International Business effected by Natural Disasters  During the 3rd week of December 2005, Richardson was interviewed live on air for the  Report on Business television (ROB TV) program by host Howard Green for a segment about how natural disasters effect international business. Richardson explained that it is important to have a contingency plan and business continuity strategy which could be employed without delay. While the competition is struggling to recover after a disaster, your enterprise can be more operational and you'll achieve a competitive advantage that may yield months of favourable business until others catch up.

International Business effected by Natural Disasters

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Basically, the point I was trying to establish is that you can pretty well count on a natural disaster having a big impact on your business, either effecting your supply of component parts, or effecting the region in which your customers live - and therefore one could say that your ability to be a successful business person depends not exclusively on doing the right things in terms of marketing and customer relations, but also being prepared for a bad event cause sooner or later we all get hit by something so it is the businesses that can recover faster that will survive and thrive. The segment was recorded and a .mpeg clip is available see  http://www.robtv.com/articles/rob.tv/2 specifically   http://people.senecac.on.ca/tim.richardson/audio/audioROBTV-DEC-2005-WITIGER.wmv WTGR

Canada's major international export products/commodities
   o forest products
            o dimension lumber (2x4, 2x6 etc.)
            o wood pulp for making newsprint and cardboard
            o paper in giant rolls for cutting and processing
            o processed wood, like plywood, fiberboard, mouldings, shingles, etc.
   o grains and oilseeds (wheat, canola)
   o marine products (frozen fish, roe, crustaceans)
   o mining and minerals
            o ore and ore concentrates
            o coal (metallurgical and thermal)
            o processed metal products (sheets of aluminium, steel. copper)
            o precious metals such as gold and silver
   o agricultural products (cheese, beef, maple syrup, etc.)
   o automobiles, automotive parts (GM and Ford cars from Oshawa and Oakville to the U.S.)

Canada's major international import products/commodities
   o consumer products (VCR's, computers, cell phones)
   o processed food products
   o automobiles, automotive parts
   o clothing
            o Canada used to have a strong garment industry in Quebec
                   but competition from Asia shut that down in the late 1990's

Now that we know have a bit of a short intro to "what is" international business, let us keep in mind the title of this course, it is "International Business Management" - meaning understanding management (or, being the boss of other people) in the context of international business.

International Business Management requires us to not only have a grounding in what the key sectors are, but we must also know some of the players.
 

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Canada's Largest Corporations: FP500 for 2007 (selected list)
taken from  http://www.canada.com/nationalpost/financialpost/fp500/charts/data1.html on Sept 5th 2007

Ranking		Revenue		Profit
2006	2005	Company	Amount 2006 $000s	Amount 2006 $000s
1	4	Royal Bank of Canada, Toronto	36,045,000	4,728,000
2	2	Manulife Financial Corp., Toronto	34,194,000	3,970,000
3	1	General Motors of Canada Ltd., Oshawa.	33,340,112	n.a.
4	3	George Weston Ltd., Toronto	32,167,000	121,000
6	6	Magna International Inc., Aurora, Ont.	27,420,120	598,752
7	8	Alcan Inc., Montreal	26,808,894	2,029,860
8	5	Imperial Oil Ltd., Calgary	24,505,000	3,044,000
9	9	Sun Life Financial Inc., Toronto	24,287,000	2,144,000
10	14	The Bank of Nova Scotia, Halifax	22,482,000	3,579,000
11	13	The Toronto-Dominion Bank, Toronto	22,302,000	4,603,000
12	10	DaimlerChrysler Canada Inc.	20,534,000	n.a.
13	12	Canadian Imperial Bank of Commerce,	20,166,000	2,646,000
14	16	Petro-Canada, Calgary	18,911,000	1,740,000
16	17	EnCana Corp., Calgary	18,596,466	6,409,368
17	19	Bank of Montreal, Montreal	18,153,000	2,663,000
18	11	BCE Inc., Montreal	17,713,000	2,007,000
19	15	Bombardier Inc., Montreal	16,830,976	304,448
20	20	Shell Canada Ltd., Calgary	14,651,000	1,738,000
21	33	Suncor Energy Inc., Calgary	14,342,000	2,971,000
22	22	Wal-Mart Canada Corp.,	14,300,000	n.a.
23	21	Ford Motor Co. of Canada, Ltd.,	13,809,000	n.a.
26	24	Nortel Networks Corp., Toronto	12,948,012	31,752
27	29	Husky Energy Inc., Calgary	12,664,000	2,726,000
28	23	Honda Canada Inc., Toronto	12,600,000	n.a.
34	39	Enbridge Inc., Calgary	10,644,500	622,300
35	38	Canadian Natural Resources Ltd.,	10,398,000	2,524,000
36	34	Falconbridge Ltd., Toronto	9,867,228	1,055,992
39	41	Costco Wholesale Canada Ltd., Ont.	9,049,005	n.a.
40	44	Rogers Communications Inc., Toronto	8,838,000	622,000
41	40	Telus Corp., Vancouver	8,681,000	1,122,500
44	43	Canadian Tire Corp. Ltd., Toronto	8,269,100	354,600

 
 

Clearly the banks and the oil companies appear to be the big players in the Canadian economy Both kinds of companies (operating in a monopolistic environment) are, in a sense, companies which make money off of other companies. The phrase "economic pimps" was used by one student and he dared me to use it on the web site.

GLOBALIZATION - forcing competition - opportunities for small companies - sustainable development - worldwide protests against globalization - growing power of MNCs - OECD Guidelines for MNCs - specific consequences - globalization and the environment

Definition of Globalization

  o  People around the globe are more connected to each other than ever before.
  o  Information and money flow more quickly than ever.
  o  Goods and services produced in one part of the world are increasingly available in all parts of the world.
  o  International travel is more frequent.
  o  International communication is commonplace.
This phenomenon has been titled "globalization."
From Keith Porter http://globalization.about.com/cs/whatisit/a/whatisit.htm

The term “globalization” describes the increased mobility of goods, services, labour, technology and capital throughout the world.
 http://www.canadianeconomy.gc.ca/English/economy/globalization.html

"Globalization is a term for the horizontal and vertical integration of manufacturing and trade on an international level"
www.endgame.org/gtt-globalization.html

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."Globalization forces everyone to compete with the cheapest producers."

Is this a good thing or a bad thing?

"In the early 1990s, bleached hardwood pulp cost

• $78 per ton to produce in Brazil,
• $156 per ton to produce in eastern Canada, and
• $199 per ton to produce in Sweden."

 - therefore the cutting down of the rainforest in Brazil !
by George Draffan, Public Information Network, Seattle

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Globalization, some specific examples of the consequences

U.S. company in Mexico

In Mexico, a U.S. waste disposal company, Metalclad, was awarded $16.7 million in damages after the state of San Luis Potosi blocked its waste site in the village of Guadalcazar. Local residents complained the Mexican government was not enforcing environmental standards and that the project threatened their water supply. Metalclad's victory established that NAFTA's dispute mechanism reaches to subnational governments, including municipalities."

"... in a small town in the  Mexican state of San Luis Potosi, a California firm -- Metalclad -- a commercial purveyor of hazardous wastes, bought an abandoned dump site nearby. It proposed to expand on the dumpsite and to haul toxic waste material and other hazardous stuff and dump it in San Luis Potosi. The people in the neighbourhood of the dump site protested. The municipality, using powers delegated to it by the state, rezoned the site and forbid Metalclad to extend its land holdings.Concerned about the potential hazards of the reopened dump to  the local water supply, the state conducted an environmental impact study. As a result, it rezoned the property and forbid any extension of Metalclad's land holdings. Metalclad, under Chapter 11 of the NAFTA, then sued the Mexican  government for damage to its profit margins and balance sheet as  a result of being treated unequally by the people of San Luis Potosi. A trade panel, convened in Washington, agreed with the company."
 http://www.canadiandimension.mb.ca/extra/x0421dc.htm

Globalization, big companies forcing small companies to compete at an unfair level
 

How Canadian Tire's overseas sourcing  led to a Canadian icon  losing business

Woods Canada Limited was founded in 1885 and has been a well known Canadian manufacturer of outdoor clothing and equiment. They were most famous for good quality sleeping bags which they made in Canada (in Toronto) right up til 2005 As explained by the president of Woods,  David G. Earthy,   www.woodscanada.com/_Messages/Msg_02_Dec06.html a significant part of Woods business was supplying Canadian Tire - in fact the two companies had a supplier - retailer relationship more than 80 years. Earthy explained Woods had to shut down operations following "...a decision by the Company’s largest customer, Canadian Tire, to discontinue purchasing domestically manufactured sleeping bags." It has been suggested by others in the industry that Canadian Tire (facing competition from Wal-mart and other big vendors of camping equipment) had to further cut costs and was simply geting cheaper sleeping bags from suppliers in China.

How Walmart's low price policy was accused of shutting down a  North American manufacturing company

An example of North  American workers losing jobs to cheaper labor overseas Schrade is (was) a very old family based American manufacturing company that made, since 1904, a limited range of folding knives and fixed blade knives for decades at their factory in the small town of Ellenville in New York state. Some of their product line can still be seen at  http://www.knivesplus.com/schrade-knives.html Like many small and medium sized manufacturers, Schrade was flattered when Wal-mart expressed interest in buying their product - the obvious consequence was that Schrade would be able to manufacture in larger numbers and have a better chance of staying in business in a competitive marketplace. Over a period of time, Wal-mart became Schrade's largest customer to the point where 80% of Schrade's product was going to the large discount chain. Then, Wal-mart squeezed Schrade by asking them to compete with low priced knives they were beginning to source in China. Schrade could not match the very low price from China so Wal-mart abruptly cut their business with Schrade. Faced with the loss of its largest customer, Schrade crashed in 2004 barely reaching the 100th anniversary of the founding of the company before all its assets were sold at auction as it was forced in bankruptcy. There are a number of "walmart sucks" sites on the web that have this story recounted by walmart insiders, and other similar tales, check  http://www.freewebs.com/wallmartsucks/

 

4X Foreign Exchange Topics last updated 2007 Oct 03

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This web page has audio clips - just click on the icon (like the one to the left) and you can hear Prof. Richardson's voice adding additional information to topics on the page.

turn on your speakers to hear audio clips

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INTRODUCTION

This unit will discuss issues regarding the upward and downward movement of the Canadian dollar, and the consequent effect on companies exporting and importing. It is not intended to be an ongoing thorough treatment of the topic since this topic changes almost weekly, rather it is intended to be a basic resource to support students understandings of the current issues. Basically, there are only three things that can happen   1. the dollar is very high, ie. high 80's to low 90's - which means      o it is difficult for Canadian exporters to sell their commodities, goods and services     o it is cheaper to import products from the U.S., Asia and Europe     o it is less expensive for Canadians to travel overseas for business and tourism 2. the dollar is very low, ie. high 60's - which means     o it is good for Canadian exporters selling their commodities, goods and services              - like cars and car parts into the U.S. market and food commodities to Asia     o it is expensive to import products from the U.S., Asia and Europe     o it is expensive for Canadians to travel overseas for business and tourism              - so we might see more tourism dollars spent at home                  and more information technologies used to cut business travel costs It is extremely difficult for a national government to do anything significant about the rise and fall of their country's currency, due to the complex nature of the global currency exchange market - so what we look for is how businesses and government reacts to dollar changes and if those reactions help or hurt the economy. WTGR

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Higher Dollar October 2007

image: cbc.ca website October 2007,     data: Pacific Exchange Rate Service

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Higher Dollar October 2007

"key economic indicators" of why the Cdn dollar is strong, and may stay strong strong commodity prices strong canadian economy trade surplus generating jobs housing is strong Canadian FDI

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Higher Dollar October 2007

"Some of the reasons for the Canadian dollar's strength have been around for years. Commodity prices have been soaring in the last few years. Oil, copper, gold, wheat — you name the resource and Canada seems to produce and export it in abundance. The loonie is also drawing strength from the comparative strength of the Canadian economy. Canada has healthy budget and trade surpluses; the U.S. runs big deficits in both. The Canadian economy is still generating jobs, while the American economy is shedding workers. The Canadian housing picture is also much healthier, with little evidence of the subprime meltdown that's shaken the U.S. The weakness south of the border has the U.S. Federal Reserve slashing interest rates, while the Bank of Canada may soon be raising rates to rein in inflationary pressures. That divergence has been noticed by currency traders. The futures markets show that speculators are increasingly betting that the Canadian dollar will extend its gains.The U.S. dollar, on the other hand, has been limping through historic weakness. It's now at an all-time low against the euro." CBC news on CBC.ca September 20, 2007

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Higher Dollar October 2007

"key economic indicators" of why the Cdn dollar is strong, and may stay strong Canadian FDI - Foreign Direct Investment large Canadian companies (particularly banks) are leveraging the high dollar to conduct some FDI that will make these companies even stronger eg. TD Bank buying U.S. bank Commerce Bancorp for $ 8 billion

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High Cdn $ analysis

High Canadian dollar PRO: "Canadian importers have more leverage with a stronger Canadian dollar, because it has more buying power south of the border. U.S. goods - from apples to  auto parts - become more affordable for Canadians."   .Key Points Being able to import a lot of consumer products is a good thing. You don't always want to concentrate on exporting. Importing the consumer products you want, at a reasonable price, serves to enhance the lifestyle and happiness of the citizens of the country. A high Canadian collar also makes it possible for more Canadian tourists to travel outside the country. This is a good thing - you don't want the citizens of a country ignorant of the rest of the world - world travel helps to develop an educated population and a population more likely to understand what is going on around the planet. WTGR . "At the same time, a stronger Canadian dollar will drive down U.S. buying power, resulting in fewer foreign orders.  The resulting downturn in sales will have manufacturers looking to implement cost-cutting measures.

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High Cdn $ analysis

High Canadian dollar CON:  "A high dollar makes Canadian exports more expensive to foreigners"   Key Points So, if you want to know if a high Cdn dollar is negatively effecting Canadian exporters competitiveness, look for stories about a Canadian company laying off employees because they lost an export sale due to competition from an American or Australian company that offered the customer a lower price. These stories are most commonly found in products which are based on commodity pricing like semi-processed agricultural products, dimension lumber, and steel. WTGR .

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Why would you want to get involved in the Foreign Exchange Market?

"If you are a Canadian business that has suppliers or customers outside of Canada, then you face foreign  exchange risk. If you have accounts payable in another currency and the Canadian dollar weakens by the time they come due, it will cost you more to pay those accounts than you had originally anticipated. If you have accounts receivable in another currency and the Canadian dollar strengthens by the time you collect them, then the funds you receive will be worth less than you had planned." this quote was at www.tdbank.ca/business/foreign/info_foreign.html

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Factors affecting the exchange rate read http://www.bankofcanada.ca/en/backgrounders/bg-e1.htm "Canada has a floating exchange rate. .. The exchange rate is affected by supply and demand for Canadian dollars in international exchange markets. If demand exceeds supply, the value of the dollar will go up. If the supply exceeds demand, its value will go down. On an average day, CAN$37 billion is bought and sold on the international exchange markets.  Several factors influence the supply of and demand for Canadian dollars. If interest rates are higher in Canada than in other countries, investors may choose to invest in Canada, increasing demand for the dollar, providing that the expected rate of  inflation is not higher in Canada than among our trading partners. If our inflation rate is higher, investors are less likely to prefer Canada — even with higher interest rates — because of the expectation that the value of the dollar will be eroded by  inflation. "

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Canada's major financial institutions all have web sites on which they describe their products and services. Included in this "marketing" material is also some information to explain concepts to customers - therefore it is possible to find descriptive information about the business of the Foreign Exchange market on several banks web sites.
 

4X info from the major banks in Canada

. In the case of RBC - they have a portion of their site devoted to a short glossary of Foreign Exchange terms, start at  www.royalbank.com/ .  RBC also have a short page with examples of situations a company would be in that require using 4X instruments. They call this page grandly "Foreign Exchange Case Studies" it used to be at  www.royalbank.com/sme/guides/foreign_exchange/case_studies.html but that link is not working in 2005 RBC also had a helpful page which has a good lead in to the topic of 4X risk, saying "The globalization of business and interdependence of world markets has increased the chances of severe and unpredictable currency fluctuations. These trends open a category of risk for all Canadian businesses that can be new and unfamiliar. What's more, foreign exchange losses come straight out of your profits, often without tax deductibility and the possibility of recovery. When your profit margins are already slim, foreign exchange losses can make or break your business in any given financial period." this was posted previously at www.royalbank.com/sme/guides/foreign_exchange/risk.html   KEY POINTS The point being that 4X is not a trivial matter, but something that can effect your competitiveness in the short term as well as long term.

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WHY EXPORT    o Why Companies Grow    o Why Companies get involved in International Business    o Reactive Reasons, Proactive Reasons for exporting

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INTRODUCTION

Many businesses are forced into international selling due to the competitive environment. While it might be wonderful to stay the same size and just focus on quality, the problem is that the competitive environment creates situations where your competition continues to grow - so, if you do not grow and expand you will lose customers.  Your former customers will move to larger vendors that can offer lower prices (because they sourced components internationally and can offer economy of scale).

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Why Companies Have to grow

The main purpose of business is to make money for the people who own the business. All other objectives are secondary to achieving this goal - it may sound heartless, but it is the essence of capitalism. Achieving this goal obviously means making enough money to stay in business several years in order to pay back any money you borrowed to get started, and make enough money that it is worth your while to have developed the endeavour. Therefore managers seek to increase or to stabilize profits, which partly depends on foreign sales foreign resources Why does business have to grow? Why can't a business just stay the same size? Why does a business have to sell outside the territory of its original customers? Why does a business have to access resources outside the territory of its original base? The answer to these questions is the answer to why International Business exists - and will be explained in the lecture. A big part of the answer to why business has to grow is simply based on the fact that business cannot stay the same size - if your business does not grow, the competitors will grow, and soon you will lose your customers to competitors who grew, and had more selection, or made cheaper products. So you have to grow because the nature of the competitive environment will not let you stay the same size WTGR

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Why Companies do IB..

Why Companies get involved in International Business There are 4 major operating objectives that may cause companies to develop International Business    1  To expand sales    2  To acquire resources    3  To diversify sources of sales     4  To diversify sources of supplies Which, if you do #3 and #4 leads to     o Minimizing  competitive risk

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Collaborative  Arrangements
o Management Contracts    o Turnkey Operations    o Licensing Technology    o Joint Venture      - Co-op Joint Venture      - Equity Joint Venture	o Alliances      - Strategic Alliances      - Equity Alliances    o Consortiums    o Franchising    o Contract Manufacturing

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Motives for International Collaborative Arrangements

or, subtitled "reasons why companies get involved in complicated ways with other companies"

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Motives for Collaborative Relationships

spread costs to other companies allows you to achieve greater economy of scale and save money eg.  two allied companies buying materials from the same supplier can result in discount pricing from the supplier

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Motives for Collaborative Relationships

specialize in competencies AKA "focusing on what you do best" eg. licensing your logo to a clothing company instead of buying the company

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Motives for Collaborative Relationships

avoid competition co-operating with a competitor to fight against another competitor or, something which happens fairly often, turning a competitor into an ally by joining together in some alliance

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Motives for Collaborative Relationships

secure vertical and horizontal links vertical links would be a furniture mfg.company developing a relationship with the forest products company, or the fabric manufacturing company horizontal links are developed to spread into all aspects of the market and achieve dominance horizontal links are also developed for projects that are too large for one company, such as giant sized civil engineering projects such as railways, airports, hydro dams etc.

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Motives for Collaborative Relationships

gain market knowledge this might be important if the market is complex - meaning effected by many rules and regulations, or an unusual social-cultural mix

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Motives for Collaborative Relationships

gain location specific assets proximity to specific transportation hubs, railroads, highways for example, in the late 1990's, U.S. based Wendy's teamed up with Canada's Tim Horton's because it gave them access to all the great locations Tim Horton's had at the service centres on the major highways across Canada

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Motives for Collaborative Relationships

overcome legal constraints sometimes int'l business situations have regulations regarding local ownership and management, which can be satisfied if the large MNE develops a JV with a local enterprise

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Motives for Collaborative Relationships

diversify geographically

FDI Concepts Foreign Direct Investment

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Case Study: Bridgestone /Firestone Tire

Firestone was a well known American tire manufacturing company. Bridgestone is a well known Japanese tire manufacturing company. As Japanese auto companies began to develop FDI situations in North America in the 1980's, the Japanese companies supplying parts and accessories, for cars, also began to seek out FDI in the U.S. and Canada. Firestone Inc. was acquired for $2.6 billion in 1988 by Bridgestone Corp. of Japan, which invested another $1.5 billion modernizing Firestone factories. Bridgestone / Firestone then began to sell tires to the Japanese auto assembly plants in the U.S., as well as to the existing customers of the old Firestone corporation. By selling tires in the U.S. (made in the U.S.) to Japanese assemblers, Bridgestone / Firestone could avoid circumstances of tariffs or 4X [foreign exchange] problems.

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Case Study: Bridgestone/Firestone.

• FDI to grow the company worldwide
• Enhacing capability in the U.S. would enhance the capability of Bridgestone globally since the U.S. is a key driver of the world-wide automotive market
• FDI to avoid trade barriers
• Bridgestone bought Firestone so that it could manufacture tires in the U.S.A. for Japanese automakers selling vehicles to Americans
• FDI as a result of following your customer
• Bridgestone had been selling tires to the major Japanese auto assemblers and when these assemblers set up plants in the U.S.A. and Canada, Bridgestone followed in order to maintain those customers and not lose them to other tire manufacturers
• FDI to avoid 4X disadvantage
• When the Japanese yen rose against the U.S. dollar in the mid-1980's, it became more expensive to import Japanese tires into the U.S.A. If tires were made in the U.S.A. and sold to Japanese customers in the U.S.A., Bridgestone could avoid the cost of a high Yen/Dollar currency exchange rate
• FDI to take advantage of a 4X advantage
• When the Japanese yen rose against the U.S. dollar in the mid-1980's, it also meant that Japanese business people had more money to "buy dollars" and therefore investing in the U.S.A. became comparitively cheaper because of the higher Yen
• FDI to "buy" marketshare
• If a company considers it financially expensive to compete with a local strong brand, one of the solutions is to buy a local brand in that country which is the same as "buying" local marketshare
• FDI to acquire local management expertise
Given a choice between opening up their own operation run by Japanese, or having an operation run by Americans - who knew the U.S.A. market, Bridgestone considered it wiser to buy Firestone since it would instantly give them access to a U.S.A. management team
• FDI's effect on local jobs
• One of the consequences of a foreign aquisition is the tendancy for the new foreign owners to want to try to increase productivity and cut costs. The most common way of cutting costs is to cut the numbers of employees and make the existing employees work harder and produce more. "In 1979 about 127,000 Americans worked in tire manufacturing. In 1983 the figure was just 94,000, by 1994 it averaged 81,300. Yet these 81,300 tire workers managed to produce a record 260 million tires. In fact, 36% fewer workers made 17% more tires" said Daniel Akst, Los Angeles Times Magazine
• the main reason why the Quebec government agreed to support the expansion of the plant in Joliette was because 1,250 jobs were at stake if this facility did not become more competitive
• FDI's supported by host government support
• Sometimes the decision to carry out an FDI situation, or expand an existing situation , depends on any financial support provided by the host government.

This support can be in the form of corporate tax concessions, or an outright financial contribution, like the example in Quebec in Nov 2005.

FDI in Canada Foreign Direct Investment in Canada examples of FDI by other countries in Canada  .

Hudson's Bay - bought out by foreigners

When I (Tim Richardson) was a small child, my mother had a Hudson's Bay blanket draped across the bottom of my parent's bed. She showed me the black marks that indicated how many beaver belts it was worth and told me of the great company that spanned Canada from sea to sea to sea.  www.sacksstore.com/hudsons-bay-blanket.htm For my father (Prof. George Richardson), who was born in Western Canada, trips to the local "Bay" store were an important part of sourcing provisions of all kinds in the 1940's and 1950's.  http://www.pbs.org/empireofthebay/ My grandfather and great-grandfather shopped at the Hudson Bay Stores in Manitoba in the 1800's. "...at one point the Hudson's Bay Company owned most of Canada, and it was only after Confederation in 1867 that negotiations were undertaken with the goal of transferring ownership of lands west of Kenora, Ont., to the government of Canada."  en.wikipedia.org/wiki/Hudson_Bay_Territory  In January 2006, American billionaire Jerry Zucker finally put together a large enough offer that the Bay's board of directors agreed to sell the company. This is somewhat sad since many of the other large Canadian companies like Eatons and the Canadian Pacific Railway hotels are also sold off foreigners. In the 4th week of January 2006 the story of the Bay being sold got a lot of press in the newspapers. Why would an American want the Bay? Well, it has 100 Bay department stores and 290 Zellers discount all in prime areas of real estate in all the large and medium sized Canadian cities - that in itself is quite valuable. Some people think this situation of foreign FDI in Canada is bad for Canada and they note that Dominion Bond Rating Service, which kept HBC "under review with negative implications," reiterating concern that Zucker, who is paying $1.06 billion to buy the company might gut the retailer of its real-estate assets which have an estimated value of between $700 million and $900 million. WTGR

SUBSIDIES - dairy farmers, corn farmers - automotive & airplane manufacturing subsidies

INTRODUCTION

Subsidies - the giving of money to stressed industries, or the allowing of tax cuts, or other favours - are techniques used by national and regional governments to help make vulnerable businesses more competitive.  In Canada there are several subsidies that cause Americans and Europeans to criticize us. The controversial Canadian subsidies are the ones we provide to our agricultural industries, forest products, and mining and steel. All of these sectors are noted for the geographic concentration of their activity, which translates into a local constituency which may or may not re-elect the local member of parliament - depending on whether that person "can keep the saw mill running...". . There is a lot of pressure on elected politicians to fight to keep subsidies since it can mean the difference between getting re-elected, and not - if the main business in your constituency becomes uncompetitive and starts to lay off employees, the dislocation in the community can be very significant. . WTGR

Key Points

Subsidies are still a sensitive issue in Canada since we still have a significant number of members of parliament elected from rural ridings - which means elected by farmers. Subsidies are government support for many things but often it is most "political" when it regards agricultural products. In Canada, despite the growth of immigration to Toronto, there are still a large number of Canadian living and working on farms in Western Canada and rural Ontario and rural Quebec. The products from these farms are expensive to produce at a competitive cost and therefore the provincial and federal governments have many programs to support the farmers. The dairy industry is a big industry in Canada - to know more about this, read the federal government's brief  www.agr.gc.ca/food/profiles/dairy/dairy_e.html

Key Points

The dairy industry in Canada is very big in Quebec, and also in Ontario and many Quebec federal politicians feel a lot of pressure to support the dairy farmers. WTGR

Corn Subsidies  U.S.

The National Post reported in April 2006 that "Canadian Corn Farmers Protest U.S. Subsidies" Canadian corn producers (farmers of corn) say they are having a hard time selling corn at low prices to Canadian customers because the U.S. farmers are selling corn into Canada at lower prices.  The Canadian farmers claim that the U.S. farmers receive heavy U.S. government support in the form of subsidies and additionally, U.S. corn producers are selling corn in Canada for a price lower than in the U.S. - which is technically the definition of dumping. Canadian users of corn - such as pet food manufacturers and corn processors that make corn starch, like Casco Inc. say that they want the Canadian government to cut tariffs on U.S. corn so they can obtain this resource at lower prices. The Canadian corn producers want to maintain the levy on imported U.S. corn. CBSA - Canada Border Services Agency  www.cbsa-asfc.gc.ca  is the Canadian federal ministry that rules on such tariffs. The CBSA takes many factors into account including rulings by other national and transnational agencies. CITT - the Canadian International Trade Tribunal  www.citt-tcce.gc.ca  ruled the levy on U.S. corn should be repealed.  see the ruling  www.citt-tcce.gc.ca/doc/english/Dumping/Public_Interest/Considerations/mn89002_e.pdf  The Pet Food Association of Canada said the CITT decision was good for their pet food producers because it allowed then to compete against U.S. rivals.

summary So you have an interesting situation in which one group of Canadians want a tariff on incoming grain corn. Another group want the tariff removed - because, cheaper corn will allow them to make something with that corn at a competitive price, which they can export back to the U.S.

DUMPING - the effects and influences of the  POLITICAL ENVIRONMENT

W T O

The WTO is essentially a world trade referee for countries wanting to grieve that parties to trade agreements have broken the agreements. Some people have commented that the participants in the WTO have behaved as extreme and sensational as that other international organization with three initials that also begins with the letter "w".
WTGR
 
 

KEY POINTS

In the 2nd week of December 2000,  the major Canadian newspapers reported the WTO ruling that backed Canada in its argument with Brazil over aircraft subsidies. Many Canadians know that Bombardier of Quebec has been building snowmobiles for decades and that the company branched out into personal watercraft, subway cars and light aircraft. A large number of Canadians may not know that through a combination of growth and acquisition (eg. they bought Lear Jet) Bombardier has become the third largest aircraft manufacturer in the world. A large number of Canadians may not know that Brazil has a vibrant automotive and aircraft manufacturing sector and is now competing with Canada for the international aircraft market. WTGR

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WTO Current Issues  effecting  C A N A D A

WTO gave Canada the green light to impose sanctions against Brazilw "The WTO has given Canada the green light to impose sanctions worth $2 billion against Brazil ... the approval followed an arbitrator's ruling that the sum was worth the amount Canada was losing because of Brazil's ProEx export subsidies program to aircraft maker Embraer SA. ...Bombardier says it lost international sales because of the subsidies program" explained in a Toronto Star story in Dec 2000 by Madhavi Acharya business reporter

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WTO commentary on Canada / Brazil aircraft dispute Dec 2000

In the second week of December 2000, the subject of WTO backing Canada in the aircraft subsidy challenge with Brazil, was noted on the front page of the WTO website. "Canada’s retaliation against Brazil  approved in aircraft case" "The WTO Dispute Settlement Body on 12 December 2000 approved Canadian trade sanctions in retaliation for Brazil’s failure to implement a ruling on aircraft export subsidies. " The use of the word retaliation means that as a result of finding that Brazil broke the rules in subsidizing aircraft production (which negatively effected Canadian aircraft producers), Canada will be authorized to impose high tariffs on Brazilian products being imported into Canada. The consequences are daunting for Canadian importers who wish to continue importing products from Brazil because any price advantage they might have previously enjoyed (importing from a low production cost Latin American country) will be lost since the newly imposed tariffs will make it too costly to profitably import some consumer products and processed food products from Brazil. "The WTO Dispute Settlement Body on 12 December 2000 agreed to let Canada  impose trade sanctions of up to C$344.2 million per year on imports from Brazil in retaliation for Brazil’s failure to implement a ruling on aircraft export subsidies."  www.wto.org/english/news_e/news00_e/dsb_12dec_e.htm

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WTO - effect on Cdn companies

A CANADIAN PRESS story carried by the Toronto Star "WTO Ruling costs 62 jobs at Saputo" .  Saputo Inc.  www.saputo.com The Toronto Star story is brief so we will quote direct from the press release on Saputo's site. "Saputo Inc. announces the closing of a plant in its  Cheese Division (Canada) located in Cookstown, Ontario, ... 62 employees are affected by this decision. These announcements come in the wake of ... the recent decision by the World Trade Organization [2003] concerning the Canadian system of the supply of milk to be used in products for the export market. In order to comply with that decision, Canadian dairy processors are required to export their products at prices that make the exporting of dairy products from  Canada non-competitive. The Cookstown, Ontario, plant, which employs 26 people, will definitively cease  its operations on August 1, 2003." .  Saputo is the leading cheese producer in Canada - it has 7,000 employees and 47 plants and distribution centres. It would be considered a large company by Canadian standards but  medium sized company by global standards.

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KEY POINTS

- when they [Saputo] say "make the exporting of dairy products from  Canada non-competitive" it means Dairy companies cannot sell for a low price which might be lower than what Canadians pay - if you export a product at a price lower than what you sell to the customers in your own country this is called dumping.  The reason this is bad is because it is presumed the domestic consumers have no choice but to pay the higher price because tariff & non-tariff barriers keep out foreign milk and milk products. In essence the higher prices Canadians pay for dairy products produces a profit for companies like Saputo, which help subsidize their ability to offer lower more competitive prices internationally. This is like Japanese camera companies selling cameras for high prices in Tokyo, but low prices in New York. WTGR

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Saputo Update Oct 2003

Saputo got around the WTO restrictions by buying a large dairy company in Argentina. This company already exports so Saputo can reach its Intl customers by exporting out of the Argentine company. see entry for Saputo on www.witiger.com/internationalbusiness/outlineMGTC44c.htm

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NAFTA North American  Free Trade Agreement

Canada USA Trade

The most significant thing about this chart (which comes from Sydor's Report on Canada's Trade Performance for 2000) is that fact that despite lots of encouragement from federal and provincial governments for Canadian exporters to seek out markets in Asia, Europe and Latin America - we still do more than 87% of our business with the U.S. Mexico - highly touted as an opportunity for us in 2001 and beyond, is the tiny slice of green in the chart to the left.

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NAFTA

David Crane is The Star's Economics Editor His column frequently contains articles on international business and economic issues and previous articles he has written are available on The Star's website. "Canada Must Rethink Trade Ties With Mexico" David Crane 2001 June 26   . Crane writes this article to provoke readers into appreciating the growing competitiveness of Mexico, (while Canada's continued trade with the U.S. has not been too hot) at the same time encouraging us to think of an improved Mexican economy not as a threat to our U.S. customers, but as a bigger market for us. Mr. Crane is an exceptionally good researcher and writer - he travels often and has good personal knowledge of many int'l business issues. International business students are encouraged to read his columns on a regular basis. WTGR .  Crane begins by stating that "Despite the North American Free Trade Agreement, there's something of a disconnect between Canada and Mexico. Both countries are obsessed with their relationship with the United States, but pay much less attention to one another." "Canada-Mexico trade represents less than 1 per cent of total North American trade flows."   . U.S. ~ Canada trade - very large, and stable U.S. ~ Mexico trade - large, and growing fast Canada ~ Mexico trade - very small, and not growing fast WTGR .  Crane adds "Mexico has become much more competitive, especially in the motor vehicle, electrical and electronics and machinery industries and is poised to become  more of a competitor to Canada in the U.S. market. Moreover, while Canada's share of U.S. manufacturing imports has remained flat, Mexico's share has risen sharply. Canada's share of U.S. imports has remained just under 20 per cent in the 1990s but Mexico's share increased  from 6 per cent in 1990 to 10.7 per cent in 1999."   . Like all good business journalists, Mr. Crane keeps in regular contact with business leaders and government personnel to ascertain their opinion on particular trends. For this story in Mexico, he uses material from Aaron Sydor and Gary Sawchuk of Industry Canada. WTGR .  "With Mexican exports growing at almost 16 per cent a year in the 1990s, compared to 9 per cent a year for Canada, it's easy to see why trade analysts expect at some point in the  future that Mexico will eventually replace Canada as the Number 1 trading partner of the United States." FYI - using a search engine, it is possible to find many references on the web to the activities of  Aaron Sydor and Gary Sawchuk in conferences and speeches about Canadian internationl business, particular related to competitiveness issues one ppt by Sydor is at http://www.thebusinessedge.com/reruns/gtec/lynch2/ Sydor works in the Micro-Economic Policy Analysis Branch, Industry Canada

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