Canada at the Crossroads: Reality of the New Competitive Enviroment

[chris lindberg]

Canada at the Crossroads: Reality of the New Competitive Enviroment

Canada has performed well over the past 30 years, but our standard of living is at risk.
Our prosperity was based on:
- lots of raw materials
- proximity to the U.S. market
- insulation against foreign competition

But we have adopted policies, strategies and attitudes which will not work well in the future.

Threats to our prosperity

productivity is the key to our competitivness. the ratio of Output/Input, Value/Cost

Canada must improve productivity...pursue improvment in products and processes toward higher-value outputs.
This depends on our structures and instiution: workforce, infrastructure, education and public policies.

The changing competitive enviroment

Worrisome performance trends

Exports concentrated

Key roles of foreign-controlled companies

Very limited machinery companies

Principal clusters exhibit limited breadth or depth

Few service industries are internationally competitive

Deteriorating trade balance outside of resourses

The export economy is divided into four main catagories
-another way of picturing the economy-

1. Resourse based industries - wood, metals. these are growing

2. Market-access drive - branch plants set up in Canada to avoid Canadian protectionism, tariffs, etc

3. Innovation driven industries

4. Other industries

Canada'a international competitive position: conclusion

Real or potential weaknesses:

- dependent on raw or semi-processed material...lack of breadth.
- weakness in machinery...lack of depth.
- few signs of upgrading which speaks poorly for our future prospects for productivity improvment.

CalgaryPuck, thoughts?

[Reaper]

Are you writing a paper?

Personally, I think that Canada's export economy is most threatened by the value of the Canadian Dollar in relation to the US Dollar as we are the largest trading partner of the United States. If they think our manufactured products are too expensive then they have no issue going overseas for cheaper products.

[Cowboy89]

Originally Posted by Reaper

Are you writing a paper?

Personally, I think that Canada's export economy is most threatened by the value of the Canadian Dollar in relation to the US Dollar as we are the largest trading partner of the United States. If they think our manufactured products are too expensive then they have no issue going overseas for cheaper products.

Yeah but when Lindberg refers to productivity this is exactly why we need a lower dollar to be competitive. If we could compete with Americans productivitywise then we'd find ways to make goods that are affordable and of good quality in a par dollar world. Look at car manufacturers for instance, the average American labor dollar (even after paying for private health insurance) goes farther than a dollar spent in Canada with the currency within 10 cents of the American dollar. We should focus on why that is as opposed to devaluing our dollar.

[Wookie]

Originally Posted by Cowboy89

Yeah but when Lindberg refers to productivity this is exactly why we need a lower dollar to be competitive. If we could compete with Americans productivity wise then we'd find ways to make goods that are affordable and of good quality in a par dollar world. Look at car manufacturers for instance, the average American labor dollar (even after paying for private health insurance) goes farther than a dollar spent in Canada with the currency within 10 cents of the American dollar. We should focus on why that is as opposed to devaluing our dollar.

Long run the shift in the dollar should help Canadian productivity and competitiveness. We were getting by on a weak Canadian dollar in the situations where were aren't as competitive/productive as the competition.

With the relative cost it'll come down to be better or fail. The better companies will succeed and the worse ones fail. Some may go that didn't deserve to, or that it's sad and unfortunate. But that's a reality in business.

[Cowboy89]

Originally Posted by Wookie

Long run the shift in the dollar should help Canadian productivity and competitiveness. We were getting by on a weak Canadian dollar in the situations where were aren't as competitive/productive as the competition.

With the relative cost it'll come down to be better or fail. The better companies will succeed and the worse ones fail. Some may go that didn't deserve to, or that it's sad and unfortunate. But that's a reality in business.

Totally agree. However our country has a nasty habit of having governments prop up failing companies/industries at the cost of everyone else. In order for this to happen and improve productivity we need to end corporate welfare.

[chris lindberg]

Thanks for your opinions so far CalgaryPuck, yes, this is for a friday morning test in my Business & Government class.

Determinants of national competitive advantage, the diamond

countries have combinations of characteristics which help or hinder their firms.
no country is competetive in all industries
each country shows patterns of success or failure
countries succeed in clusters of industries
success comes from ongoing improvment and innovation and constant upgrading of productitity, not from static advantages like resourses

Countries have four attributes, the playing feild for their companies
each element interact with the other to influence a country's capacity to innovate and upgrade
they can reinforce or detract from each other...people, skills, investments, tax laws, education
these influence a country's attractivness to foreign capital, skills, etc

More sophisticated industries can only arise from strengths in several of the determinants
geographic concentration helps communication and rivaly and supporting industries and makes a magnet for outside investors, makes for islands of prosperity within countries

Countries have successful clusters of companies: linkages of suppliers, customers, related industries- all competing actively
this is often the engine of a country's innovation and growth

[chris lindberg]

Applying the diamond in a Canadian context

1. Natural resources are a good source of wealth if they finance and support productivity growth and firms become more sophisticated but they can become complacent instead - as they have in Canada

2, Domestic rivalry spurs innovation, Canada'a small, widespread market has not supported many rivals

3. Foreign investment takes the form of different types of companies:
- factor sourcing...buying resources and labour...home base is foreign
- market access...in Canada avoid Canadian tariffs...home base is foreign
- Home base/core activities - they make the greatest investment, have the best jobs, develop supporting industries. Canada has attracted too few. The challenge is to attract more of them, before free trade/globalization woos away market accessors and before factor sourcers find cheaper resources

4. The Canadian Diamond in International Competition. We must seek to improve the Canadian situation...one way to access sources of strength from the U.S. diamond (basic factors, demand are easiest; workforce and infrastructure require more investment to access) Also, by strengthening the Canadian diamond.

[chris lindberg]

Directions for change

The comforable insularity of the old order

Resourses were the foundation of the old economy. we exported raw materials and didn't require upgrading, innovation R&D, or highly skilled workers, Thus, few innovation-driven industries were fed by resourses industries.

Trade policy was protectionist, and producers were fat and happy with little urge to compete or export

Labour and management had no incentive to co-operate, so instead they fought and created an atmosphere of animosity and distrust

Business has sought government protection and subsidy but has not given much back in research or training

The federal government and the provinces have fought over turf, creating waste and turmoil and massive debt.

[chris lindberg]

Government's overall effect on the old economic order

Rather than stimulating innovation and productivity growth, government provided...

1. Insulation from external and internal competition...In the interest of safegaurding national autonomy, foreign competitors were discouraged by tariffs. Domestic competition was discouraged with weak cometition laws

2. Forestalling the need for upgrading...factor costs (like oil) were artificially held down rather than making companies scramble to deal with real world conditions. Governments let the Canadian currency depreciate to reduce international costs

3. Direct intervention instead of business action....subsides and bailouts

4. Programs to distribute wealth, improve welfare and access to jobs has sheltered jobs in the short run but only delayed inevitable adjustment

5. Conflicting government policies and objectives - each layer of government has its own turf. Co-ordination is necessary in employment, research, enviroment, training, etc but instead they fight.

[Cheese]

I dont care...Im going to retire and all of you will help me live in comfort!
Now get back to work!

[chris lindberg]

Forces of change

The old order is crumbling under pressures of free trade, technological change, and the globalization of business, Canada must respond with productivity improvment and innovation. How long will it take? How painful, how costly?

Change is already taking place
- firms are modernizing, rsponding to competition
- the government is deregulating industries, reforming Unemployment Insurance reforming taxes, rewarding R&D - WHAT IS THIS

System Barriers to Change - policies, institutions, attitudes

The Canadian workforce had inadequate basic skills, technical skills, poor training and apprenticeships
R&D is too low, too concentrated in government institutions, too isolated from the industry
There are not enough good researchers
The domestic market is too unsophisticated and underdemanding to power the development of strong supporting industries
Workers feel too safe (safety net) and so do not upgrade their skills

[chris lindberg]

Threats to Canadian Industries

Resourse based: depletion, lower cost competition, not re-investing in efficiency, labour costs are high. No technological edge, vulernable

Market access based: free trade is erasing the tariffs which brought them. Many are moving away, taking jobs and best workers. interprovincial trade barriers actually encourage foreign locations.

Innovation driven: may move away to take advantage of more favourable diamonds

Moving to a new order - this is the turning point
Canada can try to resist change, or engage with it. We must adopt a new mindset.

Strengths to build on
We have a solid foundation, large exports, access the U.S. market and it's diamond, natural resourses, educated workforce, some innovative market leaders, good infrastructure - What would be some examples?
Free trade will encourage Canadian specialization in area's of genuine advantage

[chris lindberg]

Elements of a New Economic Vision - we need a new one
We need to focus on innovation, technology, advanced products and services and international trade

We need to...

- Become an innovation-driven economy. Government policies should encourage and support constant upgrading

- Increase the sophistication of the natural resourse sector, with higher productivity and more differentiated product

- Tackle barrier to upgrading throughout the economy with incentives for investment, training, innovation, skill building

- Build on Canada'a regional strengths, invest where there is strength not subsidize artificial company-location decisions

-Move quickly and decisively to acheive complete free trade within Canada. Eliminate non-tariffs barriers to trade, investment, labour mobility, which keep companies small and discourages competition

- Transform foreign subsidiaries into home bases, with an enviroment conductive to innovation and productivity growth

- Create and maintain a supportive and stable macro-economic climate with low inflation, manageable debt and low interet rates

[Shawnski]

I was expecting a different format for your posts here Lindberg. Something like:

Lumber/Manufacturing/Telecom
Steel/Livestock/Pharmeceuticals
Mining/Tourism/Fishing
Education/Entertainment/Construction

Oil & Gas
Pulp & Paper
Wheat & Barley

Water

[chris lindberg]

Implications for Canadian Firms - they must become more competitive.

They must access the Canadian diamond, along with accessible parts of the U.S. diamond. Consider the sustainability of basic factor advantages like materials and subsidies. Are workers trained, motivated?
Is there access to the latest technology? Is the domestic market sophisticated enough to support leading edge products?

Canadian companies must address the following questions:

What are the geographic boundaries of the "home" diamond? Does it cross the border? How are conditions different for firms on the other side?

How sustainable are Canadian factor advantages (materials, electricity, subsides, trade protections)?

How are Canadian skills, training, motivation?

Are there research institutions, technology, facilities available?

Does the infrastrucure support your idustry adequately? as well as your competitors do?

Is Canadian domestic demand sophisicated, world level?

Are there good suppliers available in the domestic market?

What related industries most influence your idustry? Does Canada provide access to them?

Who are your biggest competitors? How are there diamonds?

Any likely new competitors? Their likely cost struture? What are there competitive advantages?

How can your produst type be differentited? Do you have an edge in any kind of product innovation?

[chris lindberg]

Move toward Innovation-driven advantages

Can't produce me-too products, relying on cheap sources (materials. labour) to win the market. Competitors will eventually out price us. We need to be imaginative and innovative to produce more sophisticated, differentiated, processed, value added products.

Focus on area's of true competetive advantage

Not diversify into unrelated businesses, but concentrate on core businesses, where we have a real unique edge. Get out of activaties which could be outsourced to a more efficient supplier.

Upgrade the Canadian Diamond - Canadian firms must act:

- Increase investment in specialized worker skills, for greater productivity

- Forge closer ties with educational institutions for specialized skills development, co-op education

- Improve technology development, guide and adopt research findings from universities, Canada's iniversities have too few good research centres

- Transform trade associations into supporters of training programs, forgers of alliances with educational institutions, and disseminators of research findings

- Nurture Canadian supplier industries, via outsourcing and technology transfers

- Strive to develop and serve demanding Canadian buyers, to generate best efforts

- Establish info-sharing links with Canadian based firms in related industries (same technologies, distributions systems, customers)

- Develop labour management relations centred on productivity - less authoritarian, more consultive - make labour a partner in profit and pain

- Rely more on performance-related compensation

[chris lindberg]

Adopt more Global Strategies

Most manufactures do not export, and most that do, export only to the U.S., Must move to understand and serve other foreign markets. This will require patience and investment. Can benefit from foreign diamond elements like factors, technology and sopisticated demand.

Define a North American or Global Mandate

Foreign-owned Canadian firms should try to become the global or North American headquarters for a certain product line. Being particular Canadian advantagess to the situation - such as NAFTA access to the U.S. market.

Refine the Relationship with Government

Not ask for protection, subsidy or cost breaks. Demand world class infrastructure, worker training, R&D assistance, proper incentives. Improve the Canadian home diamond.

Implications for Labour

Labour must understand that prosperity can only be guaranteed through productivity improvment, higher skills, and more sophisticated jobs. Can't just push companies for ever more money. Implications:

- Focus on productivity improvment, instead of resisting it. Co-operate with re-organization, job flexibility, multi-skilling and performance based pay

- Support skills upgrading, not resist technological change

- More co-operative labour management relations - more collaborative, less confrontational - participate in corporate planning. Stop seeing management as the enemy (unless they are, of course)

[FlamesAddiction]

Our proximity to the U.S. is more of a crutch than anything. It has made our policy makers lazy and has dulled their creativity when it comes to trade and foreign relations.

[chris lindberg]

Implications for Governments

Build skills, research infrasctructure, etc. Support upgrading and productivity growth via regulations, tax laws, competition policies.

Some General Principles

- Encourage focus, adjustment and upgrading, via retraining. Not stand in the way of idustry relocations

- Minimize direct interventions, subsidies; instead courage investment and upgrading

- Relay on incentives instead of grants. Just subsidizes waste. Put money into infrastucture

- Re-enginineer social policies, so that the social safety net does not remove the incentive to upgrade and to work

- Improve intergovernmental policy coordination - eliminate the overlap and competition between different levels of government. Reduce the bureaucracies

- Maintain an open policy toward foreign investment, not restrict them or regulate their behaviour (investment, jobs, exports, etc) Try to encourage higher-tech, more R&D, advanced manufacturing activities

- Promote a sound and stable macroeconomic enviroment to complement other initiatives. Maintain low inflation, low interest rates, high levels of national saving, balanced budgets, reasonable taxes.

[chris lindberg]

Priorities in Specific Policy Area's: Factor Conditions

Canada's success has been based on facotor conditions, so attention to them is vital.

Investment in Education and Specialized Skills, Canada is not keeping up with the global skills challenge. Need better basic skills and private sector training.

- Provide more training for the unemployed - make it part of the program

- Promote private sector training, via, financial incentives to industry

- Set high national educational standards - we have no national standards now. This will encourage high peformance by schools and students

- Put more emphasis on practical curricula - make them relevant to today's conditions

- Promote co-operative education with idustry partners

- Align university funding to pay for projects that aim to increase competitiveness