Danish Siddiqui / Reuters
The first in an eight-part series of challenges facing Canada's foreign trade: Understanding how the world has changed.
The world of business is evolving rapidly, and woe to those who are unaware. One of the key challenges facing Canadian business on the world stage is understanding and adapting to the more globally integrated, fast-moving environment. For those who do adapt, it means enormous opportunity - global trade has nearly quadrupled from 1993 to 2009 because of a huge flow of foreign direct investment, trade liberalization and advances in transportation and electronic technologies. But those who fail to adapt may be in trouble, says William Polushin.
Prof. Polushin is the founding director of the Program for International Competitiveness at McGill University's Desautels Faculty of Management. He is also the president of AMAXIS Inc., an international business-development services firm with headquarters in Montreal. He has decades of experience in the trenches of international business.
What should Canadian business people know about how the world has changed?
We've seen an explosion in the degree of global integration. We've seen the development of global supply chains and, following that, global value chains. The other part of it is technology. We're moving from what has been the Industrial Age model toward a true information age or digital age. Well, how do we do business? The traditional market economy hasn't changed. What has changed is the how-to and the speed and integration. The concept of a multinational organization - it isn't just a game of the big companies any more. An enterprise can really go global from birth now. Just think about any Web development company.
An example is Skype. I go to India to do some business. Does my Canadian client know where I am? Does he care? No, it doesn't make a difference. I'm dealing with Mexico and can be based in India. I can now communicate in a very cost-efficient way with the rest of the world. The concept of location starts changing. Do you need to be right there?
The cost of doing business internationally for a small company was prohibitive. I couldn't think of trying to develop multiple markets at the same time. How much time does it take, how do I follow up, what are the means available to me to manage those markets? If I'm in Outremont and I'm a two-man operation and want to set up a Web development company, I can access global markets through my home office now.
How well do Canadians understand those things?
From what I've come across? Not too well.
Let's understand some of these great forces that are changing the environment. The small or medium-sized guy has much more ability to act in international markets, but larger companies like a Bombardier, a Magna, an SNC-Lavalin, are also taking advantage of that reality. A lot of the small- and medium-sized guys who grew up on the backs of our 'Canadian champions' like Bombardier or Magna are being told, "OK, we want you to continue to be a good supplier to us but just beware, our supply network now is also much more global. We've set up operations in Mexico, Europe, Asia. We will select suppliers from around the world that will enable us to be most competitive. So yes, Canadian suppliers, we want you to continue but you better be ready to compete at a world class level."
What should business people know about Brazil, Russia, India and China - the BRIC countries?
On the one side it's opportunity, on the other it's a threat. China's economy, if they continue on as is, will be larger than the United States' by 2025, and India will be larger than the U.S. by 2050. It's a threat if we maintain the status quo. You see a greater degree of competition around the world. Not only is there contraction in our traditional sectors like clothing and furniture but the challenge reaches into advanced sectors such as pharmaceuticals and aeronautics. These countries are, like us, investing in innovation, research and development. They're not just interested in being the contract manufacturers of the world but in becoming global players in their own right.
When you look at U.S. merchandise imports, China had 8.5 per cent in 2000 and 19.3 per cent in 2009; Canada had 18.5 per cent in 2000 and 14.2 per cent in 2009. The BRIC countries are competing with us in our traditional markets. We have to be a lot more savvy in how we compete on a global level.
Should we be, say, harnessing services in India to compete in Brazil?
You have to be realistic. What are India's strengths? Brazil is a pretty dynamic, competitive market in its own right. Companies ask, "Where does it make sense?" In the engineering world, where it's service-driven, project-driven, can we leverage some of the engineering taking place in India, and can that be set into a project we're executing in Brazil? Maybe the project management is in Brazil but part of the design work or engineering can be done in India. You have to drill down and say, "What can we draw from that country?"
Are we ready to compete?
We have great products and services - world class, absolutely. But while we are statistically a trading nation, we're not a nation of traders.
What's the difference?
Eighty per cent of our exports are with the United States. What is our number-one export to the United States? Energy. Petroleum, natural gas, electricity from Quebec, for example. Well, how much smarts does that take? It's not because you were particularly adept at developing that market, it's because you happen to be a supplier, they have a humungous appetite and they need what you have to offer.
I want to differentiate between a pro-active exporter and somebody who is market-reactive. We don't have that nation-of-traders mentality. We don't have a history like the Lebanese or a European nation in dealing with multiple nations.
Given how multicultural Canada is, why don't we have the confidence and knowledge to take on the world beyond the U.S. more effectively?
There hasn't been the requirement, for the most part. It's a double-edged sword. We're blessed with a country that has an amazing quantity of natural resources. We're blessed by having the largest consumer by far in the world to the south of us. Because of that, we've been able to build up an economic construct which to all intents and purposes has been pretty easy. We haven't faced real competition. You don't have to be real savvy on a global level when someone comes knocking on your door and says, "Can you supply me?"
Is it really necessary to go beyond that?
This is where it's changing. Absolutely. The creation of the truly global value and supply chains are forcing the smaller suppliers to rethink how they are engaged in this game. They can no longer count on the fact that Bombardier will guarantee them business just because they're a Canadian company.
Bombardier is making major investments in Mexico now. They're developing their aerospace business in Mexico. In the next few years you're actually going to see the capacity in Mexico to build from A to Z an entire Learjet. Why is that important to us? Because if I'm a supplier to Bombardier or the aerospace industry right now in Canada, I might be slapped on the side of the head with a harsh reality that some of my competition is now supplying that same company from Mexico. Am I there? Am I prepared? Do I even know that happened?
When you say the world has changed, what image comes to your mind?
Integration. If you would ask me one word, that's the word. The second word would be complex. You cannot use a standardized approach that may have worked in southern Ontario or Montreal or Edmonton and think it's going to work in China or even parts of the United States.
For insights and perspectives on addressing this challenge, read the upcoming solutions article later this week.
Sean Fine