“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.