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Canada is a laggard at attracting investment. Here’s how to fix that.

Canada has all the talent and tools we need to win in the global competition for manufacturing investment, but it will not happen by accident.


 
Production Associates work on dashboard assembly at Honda manufacturing plant in Alliston, Ontario March 30, 2015. REUTERS/Fred Thornhill

Production Associates work on dashboard assembly at Honda manufacturing plant in Alliston, Ontario March 30, 2015. REUTERS/Fred Thornhill

Although most Canadians are not aware of it, Canada is engaged in a global competition, this week and every week. No, its not for hockey or curling honours… its the fierce competition among countries to determine who will manufacture and service the multitude of products that are integral to our everyday lives—or will be in the future. Canadians who are aware of this high-stakes competition might think that it is all about technology and innovation. While those factors matter, they are only part of the story. The other part is how we compete to attract new manufacturing to Canada. This second part of the competition is the subject of a new set of studies recently completed by the Lawrence Centre at Western University’s Ivey Business School. Here is what we found.

Global trade is exploding for at least two reasons. The first is that emerging economies are expanding rapidly, creating unprecedented growth in a global middle class who are both producers and eager consumers of manufactured goods. These new consumers represent potential customers for Canadian-made products and services, while the new producers represent potential competitors.

The second reason is the rise of global value chains. Today, many firms typically participate in the production of a given manufactured product, trading all along the value chain that stretches from raw materials to finished good. This means that the manufacturers around the world are themselves potential customers for manufactured inputs exported from Canada to an ever-expanding set of trading partners.

Canada has attracted some of the new investment needed to serve these customers, but not as much as our competitors in the U.S. and many emerging economies. We remain a strong competitor but our performance has been slipping over time in this critical race.

Why are we falling behind? A superficial analysis might point to Canadian government investment incentives and labour costs, relative to those in parts of the U.S. and in certain emerging economies. However, our research shows us that the reality is more complex. In particular, two key actors play a critical role in the process of attracting investment, especially in global firms with Canadian operations. The Canadian CEO of global firms already operating in Canada must be an internal champion at the firm’s global decision-making tables to win the intra-firm competition for production or R&D mandates. And he or she must be supported by a senior political leader who serves as a public sector catalyst to build coalitions of governments, workers and training and research institutions and help to pitch investment proposals to head office decision-makers.

When we looked at case studies of successful investment attraction efforts, five common elements emerged:

  • The leadership of the Canadian CEO.
  • The investment proposal’s alignment with the global company’s long-term goals and strategic plans.
  • The Canadian firm’s track record for successful implementation of major investments.
  • A compelling business case that backs the proposal with credible facts and figures.
  • Demonstrated, sustained support from a public sector catalyst.

How do Canadian governments perform in designing and executing their investment attraction efforts relative to our best-practice competitors? Our research suggests that there is lots of room for improvement and much to learn from a detailed analysis of the best-in-class governments around the world.

We need to find ways to better coordinate the efforts of provinces, municipalities and the federal government. Like our best-practice competitors, we need to provide one-window investment attraction services that are built on our strategic strengths and on detailed knowledge of coming opportunities. While the amount of our financial support is broadly competitive, we need to simplify the terms and conditions and, most importantly, speed up the process. To meet the competition, we need to operate in private sector timeframes rather than those of public sector processes.

Canada has all the talent and tools we need to win in the global competition for manufacturing investment, but it will not happen by accident. Winning teams learn from every competitor and apply those lessons diligently. We should take a leaf from our world-class athletes and set our sights on ‘owning the podium’ in investment attraction. This is a competition Canada cannot afford to lose.

Paul Boothe is Professor and Director of the Lawrence National Centre for Policy and Management at Western University’s Ivey Business School.


 

Canada is a laggard at attracting investment. Here’s how to fix that.

  1. 4 out of the 5 are not governmental, suggesting the greater challenge is within companies.

  2. For years our government was telling us that low corporate tax rates were doing the trick although economic activity in the manufacturing sector said not. On top of that, somehow 25-30% of capital investment was flowing into the oil and gas sector (Harper’s energy economy) but never generating more than 10% GDP. Canada has a desirable social support system but that creates substantial overhead per employee which hurts competitiveness when the dollar is high; as we see, a lower dollar, while it reduces the value of raw material exports has a positive effect on value add exports. In many cases and additional problem is provincial parochialism that makes it easier to sell into export markets than domestic markets while, as we all know, economy of scale is an important factor.
    The hidden factor in all of these discussions is lifestyle: in typical surveys, taxation is usually in the range of 5th to 7th. Government policies that attract investment are more subtle than that including a willingness to actively support/defend enterprise in global markets (a total lack of effort defending solar companies against WTO action serves as a fine example). What most executives only address obliquely is that wherever they set up shop, they and their families have to live there but top executives have been a lot of places. Near the top of the list is the availability of top level talent – the kind that faces economic discrimination in post secondary education under the excuse of ‘high cost of delivery’: tepid and declining government investment in post secondary education is a long range problem. “Canada has all the talent and tools we need to win in the global competition for manufacturing investment” seems woefully optimistic.

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