Why Mexicans Don't Drink Molson

by Andrea Mandel-Campbell

  But while some foreigners interpret this indolent attitude as laziness or even arrogance, others insist it is a mask to deflect the colonial mindset that still pervades Canadian thinking and colours the nation’s ambitions. Weaned on the British Empire and then overshadowed by the United States, Canada has spent most of its young existence trying to convince a vast and disparate Dominion that it too has a manifest destiny. Still ill at ease in the makeshift union and too preoccupied with its own reflection, the country seems to lose its conviction when it strays too far from home. “We are timid about nationality, and [therefore] we are timid about trade,” says Michael Novak of SNC –Lavalin, the country’s only global engineering and construction firm.

  Many people involved in international business pin at least part of the blame on an overweening government that has often been the only common connection in the country’s bid to become more than an expression of geography. Like an overprotective parent, the state has nurtured dependence and sheltered business from risk, often throwing up obstacles that discourage companies from spreading their wings, either by weighing them down with burdensome regulation or by protecting them from competition.

  When companies do fly the coop — often at government urging — their path has been paved with government funding to pay for everything from plane tickets to hotels. In many cases the money was ostensibly a loan, but both parent and child knew it did not have to be repaid. In recent years, the federal government has become stricter with the purse strings, but behavioural patterns and expectations, ingrained over decades — sometimes centuries— remain largely unchanged.

  At Ontario Exports, the export promotion arm of the provincial government, potential exporters are shepherded across the border on trade missions to Buffalo. While on these exotic trips, companies expect the government to find contacts, set up meetings for them and even pick up the tab. “We call it handholding,” said one official, recalling a junket to the southern United States to attend a trade fair. A month later, the provincial official received an angry call from an American distributor who had been trying to contact two Canadian companies that attended the fair. Frustrated after they did not return his repeated calls and emails, the American phoned the provincial government and asked: “Are you guys serious about doing business or not?”

  COASTING TO IRRELE VANCE

  “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 compa
nies 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 what it was in 1989. “We could have been raising exports all along, but instead we turned away,” says John Powles, a Vancouver-based trade consultant. “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?’”