A group of Danish scientists, however, were not bothered by similar concerns. On hearing of the Canadian breakthrough they immediately got to work producing insulin, and in 1923 — just two years after the initial discovery— they launched a company and began treating patients. That company, Novo Nordisk, is today a world leader in diabetes treatment, employing twenty thousand people in seventy-eight countries.
Canada, in comparison, while having made world-leading advances in diabetes and stem cell research, is nowhere on the pharmaceutical industry map, according to Mendlein. It has been outmanoeuvred by everyone from Sweden and Denmark to India. “If you look at where you are on the level of research and biological science, you are probably in the G3,” he says. “But Canada doesn’t even make the G8 of pharmaceutical countries. It’s tragic.” While small towns like Indianapolis, Indiana, and Thousand Oaks, California, have spawned world leaders like Eli Lilly and Amgen, Toronto, which is home to Canada’s largest cluster of biotech firms, has failed to produce a single stand-alone biotech company or blockbuster drug.
Canada doesn’t even boast an insulin manufacturer; the original University of Toronto laboratory where diabetes was discovered was spun off into Connaught Laboratories, which busied itself with maintaining a domestic monopoly while handing out international licences to the likes of Eli Lilly and Novo Nordisk. It eventually lost its ability to even supply the Canadian market, and was taken over by the federal government in 1972 before being sold to a French pharmaceutical firm. Absorbed into the massive ranks of the world’s number three drug company, Sonafi Aventis, the “Connaught campus” in north Toronto is the only remaining vestige of Canada’s contribution to diabetes treatment.
“Canada has some software and electronics companies, a little aircraft, but no consumer goods, or cars, and it’s not really happening for computers or pharmaceuticals,” says Mendlein. “You could be the Norway in North America and rely on commodities, but you are not going to be Sweden, which is home to the top-selling drug in the world and probably the car you drive. The question is, where does Canada, which is a much bigger and much more powerful country, fit in?”
It’s a good question. To answer it, I asked four related questions about the largest supposedly “Canadian” companies to the gauge the country’s entrepreneurial drive and managerial capacity — the basic requirements for creating globally competitive companies:
1. How many companies were founded by immigrants?
2. How many had American or other foreign management?
3. How many were actually subsidiaries or spin-offs of foreign companies? (to be dealt with in Chapter 3)
4. How many, despite a listing on a Canadian stock exchange, had a CEO and/or a head office located south of the border?
The answers lead to an astonishing conclusion: an economy on cruise control, with foreigners and foreign-born Canadians at the wheel, while native-born Canadians snooze in the back seat. To begin with, almost every significant high-tech firm to come out of the Ottawa area, known in better times as Silicon Valley North, was started by a clutch of British entrepreneurs. The list includes Cognos, Corel, Zarlink Semiconductor, Mitel Networks, Tundra Semiconductor and Newbridge Networks. The exception — JDS Uniphase — was started by the beret-wearing Slovak, Josef Strauss.
Hungarian-born Peter Munk founded Barrick Gold, while compatriot Frank Hasenfratz heads up Linamar, Canada’s second-largest auto parts company. Only Magna, the parts giant founded by Austrian-born Frank Stronach, is bigger. Two Germans, Klaus Woerner (now deceased) of ats Automation Tooling Systems, a maker of manufacturing equipment, and Husky’s Robert Schad, round out Canada’s contribution to the tool and die industry. Says Schad of the preponderance of European immigrants:
“We had a good technical education and then flourished in this country because there was no competition.”
The field was equally unencumbered for brash and innovative entrepreneurs like Isidore Philosophe, who emigrated from Beirut, turning a basement business into Cinram, the world’s largest manufacturer of cds and dvds; Aldo Bensadoun, the Moroccan-born owner of the Aldo shoe chain; Karl Kaiser, the Austrian co-founder of award-winning Inniskillin wines; Peter Nygärd, the high-flying Finn who launched a textile empire from Winnipeg; and Robert Friedland, the American hippie turned promoter behind the Ivanhoe energy and mining ventures. Moses Znaimer, the architect of the Toronto-based CITY TV media group, was born in Tajikistan, the son of holocaust survivors. Saul Feldberg also survived the war in Poland and went on to found the Global Group of Companies, one of the world’s largest office-furniture manufacturers. German-born Stephen Jarislowsky, the flinty-edged octogenarian heading up the multibillion-dollar investment boutique, Jarislowsky Fraser & Co., escaped from France just as the Nazis invaded in 1941. Even Galen Weston, the grocery scion, was born in Britain, whereas Mike Lazaridis, co-founder of the country’s high-tech darling, Research in Motion, was born in Turkey.
In perhaps the most telling example of all, Canada’s most iconic brand, Roots, was started by two Americans from Detroit. In the seemingly rare instances in which companies spring from Canadian-born loins, they are rarely managed by Canadians. Scratch beneath the surface of many a Canadian company and you will likely find an American. The elite fraternity oversees such national icons as Air Canada,* CN Rail, Saskatchewan Wheat Pool,† and, until 2006, Canadian Tire.‡ Other alumni include oil company Suncor Energy, electronics manufacturer Celestica, forestry firms Abitibi-Consolidated, Tembec and West Fraser Timber, Magna International and Nortel. Our southern cousins also oversee the mining interests of Cameco, Potash Corporation of Saskatchewan, and INCO, until it was acquired by the Brazilians. Even Stelco, since emerging from bankruptcy protection in March 2006, is run by the American-born former CEO of International Steel. British-born executives run McCain Foods and Talisman Energy, while an Australian headed up Ontario’s Hydro One, the government-owned electrical utility, until resigning over a scandal involving expense accounts in December 2006.
Some companies are even double dippers. CN, Cott,* Lions Gate Entertainment, NOVA Chemicals, Brookfield Properties (which built the iconic Montreal Forum) and Thomson Financial are not only American-run, but their CEOS all live in the United States. ati Technologies, one of the world’s largest 3d-graphics-chip designers, has the distinction of being a triple dipper. Founded by Kwok Yuen Ho, the son of a wealthy Chinese family dispossessed by the communists, ati’s top management is American, including CEO David Orton, who commutes to work from California.† It seems only fitting, then, that the Canadian Council of Chief Executives, the country’s leading corporate organization, is headed by American-born Chairman Rick George.
‡ To foreigners this is striking. “Canadians don’t have confidence in their own abilities. They often bring in Americans to run their companies,” says Boris Rousseff, a European trade consultant to Canadian firms. “It’s an issue of corporate culture. Canadians try to pretend they are not who they are.”
And therein lies the root of the dilemma. Canadians are ensnared in a kind of Gordian knot: because their economy is essentially run by foreigners, they necessarily downplay or underestimate their own abilities, and by extension their own Canadian brand. And the fact that there are no Canadian brands reinforces Canadians’ suspicions that they have no value. Why is it, asks Andrew Stodart, vice-president of marketing and business development for Diamond Estates Wines and Spirits, that uniquely Canadian brands like Coffee Crisp candy bars and Molson Canadian beer were never marketed around the world? “Canadians abdicate brand building,” he says. “It comes back to the great Canadian inferiority complex.”
Sadly, it becomes a self-fulfilling prophecy. Without the premium and protection that brands afford — not to mention the estimated 30 per cent boost they bring to a company’s stock market price — the only other option is to be a commodity. “You are condemned to be second rate,” says Stodart, competing on price instead of market position. And in today’s global market, “there�
�s always somebody cheaper.”
Even the Chinese realize it’s a losing proposition. Their national champions have begun acquiring internationally recognized brands like rca televisions and IBM’s personal computer division. China’s leading car maker, Nanjing Automobile Group, has bought the design rights to the United Kingdom’s bankrupt MG Rover Group and plans to make its own high-end brand sedan, which it will sell in Europe and the United States. In 2006, a Chinese brand (telecom giant China Mobile) ranked, for the first time, among the world’s most valuable brands,* coming in fourth after Microsoft, GE and Coca-Cola. Its estimated value: us$39 billion. Beijing-based Longfa Decoration Corp., in an attempt to copy the American franchise model, launched its own furniture retailer, Mermax, in the United States. “We want to provide a full service and create a brand,” said Yan Shihong, the enthusiastic Chinese store manager of its first Chicago location. “It’s the American way, right?”40
Canada, in contrast, seems to have turned the normal evolution from low-cost manufacturer to value-added brander on its head. “We are a component nation,” says Jeff Swystun. “We are a bit like China in the last century going into this century. We’ve flipped it on its head. But China is sick of playing that game. And we need to get real sick of playing that game real fast.” While the no-name, behind-the-scenes nuance may be part of the Canadian character, says Swystun, “it’s not going to allow us to win on the global business playing field.” Instead, it will brand us as “the economy that stands for nothing,” a squirrel in a menagerie of tigers, dragons and elephants.
CALL CENTRE NATION
It’s hard to get your knickers in a knot when the economy is firing on all cylinders. For most of this decade, Canadians have basked in the glow of the best economic conditions of the past fifty years, with unemployment at historic lows, companies posting record profits and skyrocketing oil and commodity prices bringing a new sheen of respectability to the loonie. So what if we don’t have brands or that we suck as salespeople? So what if we’re not the Americans’ number one trade partner or that our companies are decidedly domestic? Our gdp per capita is higher than that of Finland, a nation that is supposedly more innovative and competitive than we are, and a shot of vodka will only cost you five dollars here, compared with fifteen dollars in Sweden.
“Who cares,” asks Andrew Sharp, Canada’s resident productivity guru, if Canada does not have a single bank among the world’s top thirty, or that Scandinavian pulp and paper mills are “five times” more productive than Canadian ones? Pointing to a United Nations survey of world values, the economist noted that Canadians are among the “happiest” people on earth. And who wouldn’t be? Thanks to a combination of sheer luck and relatively little effort, Canadians are among the wealthiest people on the planet. But while most blithely shrug their shoulders and go about their business, some have glimpsed the future; and they are scared.
“Unfortunately, today I’m nervous,” says Deszö Horváth, dean of York University’s Schulich School of Business. “Canada, by default, not by design, again became raw-materials-oriented as China’s demand for raw materials and energy has created a total dislocation in the world. We can live on raw materials and oil and gas, but it’s going to go down one day, and unless we develop an alternate corporate structure here, we’re not going to be a very successful nation in the future.” Alvin Segal, the chairman of Montreal’s Peerless Clothing, was less sanguine. “We’re a make-believe country, and our make-believe country is falling apart. We can’t compete with the world — we have nothing to offer,” he says. “We’re going on American coattails. We have space galore, we’re too liberal and we’re spoiled.”
The telltale signs of the country’s stealthy slide, say observers, are all around us. Despite years of respectable, at times enviable, economic growth, foreign investment into Canada has virtually dried up. Dubbed the “canary in the mineshaft” by the Conference Board, Canada’s share of world FDI has more than halved over the past twenty-five years to 3 per cent in 2003— levels not seen since the Great Depression of the 1930s.41 “No one seems to care (about Canada),” admits a puzzled John Klassen, assistant deputy minister of International Trade Canada’s investment branch. In contrast, the United States remains atop the global charts, second only to the United Kingdom. Its share of NAFTA-bound investment, along with Mexico’s, has grown at the expense of Canada, which has watched its continental take decline by 30 per cent over a decade.42
For Chris Lindal, executive vice-president of Ontario homebuilder Viceroy Homes, the most damning proof of Canada’s waning allure is China, where a torrent of foreign money has glossed over rampant corruption and political oppression to build gleaming, modern cities that would put Toronto to shame. “This is hugely serious,” he says. “Resource-wise and freedom-wise, we are one of the best countries in the world. So why aren’t we attracting mammoth amounts of capital investment? We are not. Shanghai is. The rest of the world is passing us by in leaps and bounds, and we don’t even realize it.”
What many Canadians don’t realize is that the dearth of new investment is having a direct effect on their wallets, says Lindal, by helping to hold down wages and sucking the life out of what should be steadily rising living standards. While wages have recently been creeping up on the back of Alberta’s oil boom, Canadians’ take-home pay has been “stagnating” for years under the twin weights of high taxes and low salaries. Personal disposable income has dropped from 80.5 per cent of U.S. levels in 1985 to 67.7 per cent in 2003, according to the C.D. Howe Institute.43 “The economic well-being of the average Canadian,” concluded the td Bank in 2005, “has barely advanced in 15 years.”44 Not surprisingly, Canada has gone from having the fifth-highest gdp per capita in the world in 1990 to tenth spot today, surpassed along the way by Ireland, Denmark, Norway, Australia and Austria. Of course, it hasn’t been all downhill — to keep up appearances, Canadians have racked up the highest level of personal indebtedness in their history.
The relative decline in prosperity is a harbinger for the country’s other major Achilles heel: productivity, or output per worker. A synonym for competitiveness and a driver of living standards, productivity hinges on investment in things like technology, machinery and equipment, research and development, and human capital. Without it, output per worker drops, and so do wages.
Canada’s productivity has fallen off dramatically over the past half century, sliding from its third-place ranking among developed countries in 1960 to seventeenth in 2004.* Between 2000 and 2005 it grew just 6.7 per cent (and actually contracted in 2006), while in the United States output per worker expanded by a phenomenal 21.7 per cent. The cumulative effect is a Canadian business sector only 74 per cent as productive as that of the United States — its poorest showing since the mid-1950s and a dramatic drop from 1999, when it registered a comparative productivity of 82 per cent.45 The lacklustre performance can be measured in dollar bills. The Institute for Competitiveness and Prosperity calculates Canada’s growing income gap with the United States at $8,700 per person or an additional $12,100 in after-tax disposable income per family.46 In 1981 the gap was less than half that, and at the current rate of decline Canadians are expected to earn 50 per cent as much as Americans within twenty-five years.47
Some argue that the U.S. “productivity miracle” is a chimera that obscures the cost of competitiveness. In its bid to innovate, offshore and outsource, the United States cut 3.3 million manufacturing jobs between 1998 and 2003, while Canada’s employment swelled as business substituted capital with cheap labour to bolster output. But what was thought to be the triumph of a kinder, gentler alternative is turning out to be a pyrrhic victory.
The combination of China’s ascendancy and the sudden rise in the Canadian dollar after two decades as a bottom feeder effectively pulled the rug out from under the well-trodden path of least resistance. Between 2003 and 2006, some 300,000 manufacturing jobs were lost as the forestry, furniture and automotive industries hemorrhaged jobs. The number co
uld reach 400,000 by 2007, as close to seven hundred manufacturers went bankrupt in 2005 alone, squeezed by a high dollar, skyrocketing energy prices and shrinking shipments to the United States. The sudden decline had economists busy slashing optimistic growth forecasts for 2007 as Ontario, hit with the bulk of the job losses, flirted with a recession.
With the sector teetering dangerously on the brink, many manufacturers see little choice but to move south of the border to remain competitive. Celestica, Gildan Activewear, Distinctive Designs Furniture, Grant Forest Products, Exco Technologies and E.H. Price, among others, are shifting production south of the border. “If we don’t get the productivity, then we’ll just switch our production to the U.S.,” warns Jim Pattison, whose vast holdings include timber, fisheries and food packaging.48 As Gerry Price, CEO of Winnipeg-based E.H. Price, explains: “All our plants are highly productive. However, the reality is that all of the niche products we build in Winnipeg could be made even more profitably in Phoenix.
There’s no economic reason to continue operating in Winnipeg, other than it’s my home.”49 This is not to say that jobs aren’t being created. In 2006, new jobs, particularly in the higher-paying professional and managerial ranks, were springing up like weeds on the back of the Alberta oil boom. But for the most part, Canada has largely been churning out temporary McJobs while relying on self-employment and government to pick up the slack. Between 2000 and 2004, job growth was driven by restaurant work and new security personnel, clerical and retail sales jobs, which both grew by 15 per cent.50
One of the big winners has been the telemarketing industry. According to Site Selection Canada, a company that helps American outsourcers set up in Canada, six thousand call centres have been established here over the past decade, creating 400,000 jobs. The jobs pay on average $12.45 an hour and have been portrayed as the magic bullet for towns from Sault Ste. Marie to Red Deer, all struggling with shuttered industries and declining populations. And it’s not just small towns that are jumping on the call centre bandwagon. In Ottawa, considered to be Canada’s high-tech hub, research-intensive jobs at companies like Corel and jds Uniphase have quietly migrated south, replaced by the call centre operations of the likes of U.S. computer giant, Dell.51
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