Why Mexicans Don't Drink Molson. Andrea Mandel-Campbell
“Not so much,” seems to be the answer. And why should Canada be concerned? It has done fairly well by mining tried-and-true veins of wealth and opportunity. By cutting down trees, pumping oil and assembling cars, the country has attained one of the highest standards of living in the world. Do we really need to be jumping on planes, eating strange food and scarfing down Imodium pills to drum up more business?
According to Thierry Vandal, the chief executive of Hydro-Québec, we don’t. In the 1990s, the government-owned utility made an aggressive push into Asia, Africa and Latin America, but despite its domestic know-how, the costly venture floundered and its newly minted international division was disbanded. Luckily, the utility, which boasts the largest installed capacity of hydroelectric power in the world, has enough work in Quebec to keep it busy for the next fifteen years. “You don’t chase the hard stuff if there’s easy stuff. You pick low-lying fruit first,” says Vandal. “We don’t need to be chasing international at this stage. That’ll come in maybe twenty or thirty years.”
Vandal says he’s “not convinced” that putting off foreign forays by a few decades will put Hydro-Québec at a disadvantage to global rivals like Germany’s E.ON and Gaz de France, whose tentacles already stretch around the globe. Maybe. But what if he’s wrong? As of 2005, Quebec had become a net importer of energy. What if the utility’s copious projects were suddenly put on hold, let’s say by environmental concerns or opposition by Aboriginal groups, in much the same way as its Great Whale project on James Bay was stalled in the 1980s? And don’t forget that Hydro-Québec is the most indebted company in Canada, with $32.5 billion in long-term debt.19
Would the state-run utility know how to operate in an international context? Its less than stellar performance outside of Quebec would indicate that, at the very least, it would be at a disadvantage in a global market that is not only getting more and more competitive but is dominated by countries and companies that conduct business in a vastly different way from Canada and the United States. With just fifty companies in Canada accounting for half the country’s exports20 and little in the way of foreign investment, one could argue that the great majority of Canadian companies are in the same boat.
Joseph E. Martin, an executive in residence at the University of Toronto’s Rotman School of Management, likens the situation to the historic 1972 hockey series that pitted Canada against the Soviet Union. The Canadians, who fancied themselves the best players in the world, were surprised to find that their blunt force and power could be so easily deflected by the discipline and dexterity of the Russians. What was expected to be an easy win turned into a hair-raising comeuppance for the Canadians, who only barely squeaked to victory with a last-minute goal. “We have a wrong sense of what is going on [in the world] because we have never tested ourselves against the rest,” says Martin. “You need to be out there testing yourself and competing. Otherwise, you won’t know how good the other guys are.”
We are already starting to find out. In the United States, Canada’s share of imports has been steadily declining from 19 per cent in 1999 to 17.2 per cent in 2005 as exports from China flood into the American market. In contrast, China’s share of U.S. merchandise trade has skyrocketed from 3 per cent in 1990 to 14.6 per cent in 2005. Already the second-largest exporter to the United States after edging out Mexico, China even temporarily pushed Canada out of top spot in July 2005.* It is only a matter of time, say observers, before Canada is permanently unseated as America’s biggest trade partner.
China’s rising prominence in the United States is perhaps the most tangible indication of its emergence as a global powerhouse and its pivotal role in the ongoing revolution sweeping the global economy. The World Bank estimates that by 2050 the developing world will represent 40 per cent of global gdp, up from 18 per cent.21 Goldman Sachs, the U.S. investment bank, predicts the future membership of the G8 will be almost unrecognizable from the current line-up: Brazil, Russia, India and China will eclipse all other major industrial countries in size, with the exception of the United States and Japan.22
In this new scenario, the United States will no longer be the global behemoth that it has been. As David Emerson, Canada’s then minister of industry, noted in 2005: “It’s slowly dawning on most of us that something we took for granted for decades — the global dominance of the United States — is under threat.”23 That does not bode well for Canada. Between 1993 and 2004, the vast majority of new export growth — more than 92 per cent— went to the U.S. market.24 At the same time, if it weren’t for energy and cars, Canada’s enviable trade surplus with the United States would quickly evaporate.†
As the United States seeks greater trade ties with the rest of the world— it now has free-trade agreements with at least seventeen countries — and more competitors gain the field, Canada, a small, trade-dependent country with scant on-the-ground experience, will have little alternative but to bone up on Mandarin and maybe start returning some of those unanswered phone calls. “At some point we will have no choice but to go out. There is a huge chunk of the world we know nothing about,” says Prem Benimadhu, a research director with the Conference Board of Canada. “The growth will be in Asia, and they have a different way of doing business.”
But while those involved in international business see the writing on the wall, they are not convinced that the vast majority of Canadians are getting the message. Back in Vancouver, trade commissioner Bill Johnston has his doubts. From his corner office, the veteran federal trade commissioner surveys the sparkling high-rises and ocean beyond with an air of blithe resignation that betrays his disappointment. For years he has been trying to coax Canadian companies to trade in their cushy domestic berth for more distant shores.
“They call it the sailboat mentality,” shrugs Johnston. “Why would you get on a plane and fly halfway around the world to have tea with a bunch of strangers when you could spend the weekend on your sailboat or at the cottage?”
Across the country, Stanley Hartt’s Bay Street office in Toronto affords a very different view. His exclusive eleventh-floor perch looks out on the glass and steel towers that form the vertebrae of the country’s financial spine. But the Montreal-born lawyer, former deputy finance minister and now chairman of Citigroup Global Markets Canada is gripped by the same sense of foreboding. Every day, he says, Canadian companies pass up opportunities to trade and invest just across the border in the United States — never mind Asia.
“We have a chance to buy large U.S. companies and we don’t. We think it’s too big and we don’t want to bet the company, so we tend to creep back to the Canadian market. It’s a market we know and feel comfortable in, and we’re not hard pressed,” he says. “We are very happy to coast. There’s such abundance here, we’ve decided to pump it out and sell it. Who needs to do value-added when you can just stay home and have a nice life?”
The pervasive sense that “everything will be okay” has even raised alarm bells in slow-moving, navel-gazing Ottawa. Within the well-insulated offices of the bunker-like Lester B. Pearson building — home to the ministry of foreign affairs and international trade — senior bureaucrats have coined a phrase to describe the growing danger of continued unconcern: complacency risk.
Nowhere has that risk become clearer than in the case of Japan. The world’s second-largest economy, the Land of the Rising Sun has been a target of Canadian efforts to diversify trade for nearly half a century. Those efforts reaped little return, until a housing boom in the 1980s sparked a massive demand for Canadian lumber. Canadian exports, led by wood products, peaked at $13 billion in 1995 before a banking crisis in Japan plunged the country into a decade-long recession. Canadian sales to Japan followed suit, contracting 26 per cent in the last decade.25
It is easy to blame Japan’s economic woes for the precipitous decline. But while forestry products companies turned their attention to the thriving U.S. market, the Swedes, Finns, Russians and Southeast Asians have been filling the void the Canadians left behind. By 1997, the Scandinavians, with only a couple of years in the Japanese market, were exporting 1.8 million cubic feet of lumber — a feat that took their Canadian counterparts decades to achieve.26 As a result, Canada’s share of Japanese imports is half