† EDC has a compliance officer, who ensures that EDC follows its own guidelines. Unlike an ombudsman, the compliance officer is an EDC employee rather than being independently appointed and working out of the finance minister’s office.
* In a 2003 survey done by the Canadian Federation of Independent Business, companies identified their inability to access insurance as the biggest obstacle to doing business in foreign markets.
PART TWO
WHY ALL IS NOT LOST:
HOW TO GET FROM
BUFFALO TO BEIJING
7 DRAGON SLAYERS AND
DEPANNEUR DYNASTIES
“Canadians succeed when they dare. All that’s missing is the dare.”
STANLEY HARTT, CHAIRMAN, CITIGROUP CAPITAL MARKETS CANADA
HAVING READ THIS FAR, you might think that Canada’s future isn’t all that promising. But if you were to come away from this book thinking that Canadians are destined to be nameless call-centre drones or never move beyond your friendly neighbourhood bank manager, you’d be wrong. It’s true that a lot of people have already written Canada off, but although we haven’t accomplished half of what we’re capable of and continue to squander opportunities through sheer complacency and scattershot strategies, we are still a young country, a teenager really. And teenagers, as everyone knows, like to revel in their bad habits while stubbornly keeping their redeeming qualities under wraps. It’s simply a matter of growing up in time to recognize and celebrate those qualities, before it’s too late.
It can be done, and the following pages will introduce the people, companies, resources and strategies that are proof anything is possible and that can help pave the way. In this chapter you will meet a handful of Canadian entrepreneurs and their trail-blazing companies. Some are multibillion-dollar enterprises, and some have yet to turn a profit; some are stock market darlings, while others remain under the radar. They represent very different kinds of businesses, and they come from different parts of the country, but they all exhibit traits that often elude Canadian companies yet are crucial to international success. Each nurtures innovation, emphasizes marketing and branding, cultivates cultural intelligence and recognizes the need for global scope. Above all, they are doggedly persistent, serenely confident and hugely ambitious. I came out of each of these interviews inspired by what Canadians were capable of.
Some of the best expressions of Canadian moxie include Research in Motion, the Waterloo-based maker of the Blackberry handheld computer, the Four Seasons luxury hotel chain and Montreal circus troupe Cirque du Soleil. Each organization produces a unique, globally recognized product and manages to flourish in industries where government regulation can’t protect them. And like Cirque, the brainchild of a fire-eating performer from the small town of Baie-Saint-Paul that now boasts more brand recognition in the United States than sportswear giant Nike, an inordinate number of this next generation of globally minded, identity-driven companies hail from Quebec.
The province is a fascinating dichotomy of the country’s strongest and weakest attributes. Alternately exuberant and outgoing or chauvinistic and insular, Quebec’s dual personality perfectly illustrates how a society can turn its unique set of cultural, linguistic, political and geographic conditions into a powerful advantage or an excuse to step into its own custom-tailored straitjacket. It becomes immediately obvious that where Quebecers’ niggling insecurities prevail, the province fails to project itself internationally. Sectors like cheese, maple syrup, energy and forestry, all heavily regulated by government or industry cartels, come to mind. But a deep sense of identity, combined with a streak of maverick entrepreneurism, has acted as a springboard for companies to leave the province wherever the heavy hand of government hasn’t held them back. Although Quebec’s Aldo, the shoe retailer, and Cinram, one of the world’s largest dvd and cd manufacturers, were both founded by immigrants, Quebec is also home to the country’s only major international engineering and construction firm, SNC –Lavalin; Bombardier, the world’s third-largest plane maker; Dorel, the manufacturer of Cosco car seats and Schwinn bicycles; pharmacy giant Jean Coutu; and Mega Brands, the toy company that is bulldozing its way through Lego’s building-block empire.
That’s not to say it’s easy to get a lock on the next crop of international up-and-comers. As one federal trade commissioner aptly put it: “Whenever it’s time for a Canadian company to go international, they put up a ‘for sale’ sign.” The number of promising Canadian companies that were either sold or snapped up in a hostile takeover during my three years of researching this book was both mind-boggling and disheartening. The list includes Ontario’s two leading governmental technology companies, Zenon and Trojan, both acquired by U.S. multinationals, as was Creo, the world’s third-largest digital plate and equipment company, based in British Columbia. Renée’s Gourmet Foods, the uppity maker of everyone’s favourite Caesar salad dressing, was sold to food giant H.J. Heinz, while Vincor International, the producer of Inniskillin and Jackson-Triggs wines, was imbibed by Constellation Brands, a multi-billion-dollar wine industry consolidator based in upstate New York. The loss of Mississauga-based ati, one of the world’s leading graphic chip makers, bought by rival Advanced Micro Devices ( AMD ), was particularly grievous. But the coup de grâce had to be almost the complete appropriation of the Canadianowned hospitality sector within a 12-month span. Fairmont Hotels and Resorts was the first to fall, scooped up by Saudi tycoon Prince Alwaleed bin Talal al Saud, who also helped himself to the Four Seasons Hotels, together with Bill Gates, the founder of computer giant Microsoft. Canada’s other major hotel play, resort developer Intrawest, owner of both Whistler and Mount Tremblant ski resorts, sold out to a U.S. private equity firm. As Joe Houssian, Intrawest’s chairman, explained, the company wanted to accelerate plans to move into Europe and Asia and needed the Americans to “go on to the next level.”108
I was all set to interview BW Technologies, a Calgary-based manufacturing gem, when it was bought out by British inventors. I went ahead and met with BW ’s ingenious founder and CEO , Cody Slater, an astrophysics dropout who not only invented a wireless gas detector that revolutionized the industry, but through technological innovation has found a way to manufacture competitively in Alberta. Nevertheless, like many of his fellow entrepreneurs, Slater admits it was often a tougher sell in Canada than abroad. “When I would trundle around to oil companies, they’d ask, ‘So where in the U.S. are you importing from?’ They wouldn’t believe there was a technology product made in Canada. Canadians as a whole are very self-effacing; everything has got to be better somewhere else,” he explains. In contrast, when Slater went international, “The response was ‘Oh, it’s made in Canada — that’s excellent.’ This technology has been in northern Alberta at forty below. There was a real respect for Canadian technology and companies.”
Which is perhaps why foreigners are more than happy to scoop up undervalued or underestimated Canadian firms. Slater says the British buyers have “always been impressed by Canadian companies because they do what they say they are going to do. There is a level of commitment there.” Slater’s reasons for selling are simple: “All this does is give us more strength to become a global player. And to be successful in this world, you have to be a global player.”
That is the simple reality for many companies, including BioWare, the Edmonton video game developer that was acquired by a U.S. private-equity firm a year after I interviewed its founders. Odds are, other companies profiled here will be acquired by the time this book goes to print, but while my goal is to highlight what Canadianowned companies can do, their stories, and the message they impart, remain the same.
DRAGON SLAYERS
The heaping trays of jellied worms, sweet tarts and icing-laden Danishes set out amidst the foozball tables and comfy couches in BioWare’s rec room are not exactly what the doctor ordered. If anything, the hazy aquatic atmosphere at the video game developer’s Edmonton office, where sunlight is shunned and doughnuts are plentiful, is more lik
e a teenage redoubt from Alberta’s fresh air and outdoor lifestyle. But then again, Greg Zeschuk and Ray Muzyka are not your average doctors.
This duo of former family physicians originally set out to start a medical software company in the early 1990s, when their obsession with video games got the better of them. Huge fans of Dungeons and Dragons, the intense, role-playing board game, the pair came up with a video prototype and began cold-calling leading game publishers, including Microsoft and Sony. “We called repeatedly until they took our calls,” explains Muzyka. “The publisher we eventually went with— we called twenty times before they answered. Seven out of the ten publishers we contacted made us an offer.”
Not long after, BioWare wowed the gaming world with Baldur’s Gate, which became one of the best-selling role-playing games of all time and single-handedly revived the fading world of dragon slayers, sorcerers and shadow thieves. The company followed up by signing on to develop a series of Star Wars video games for LucasArts, the publisher owned by Star Wars creator George Lucas. The resulting Knights of the Old Republic, better known as kotor in gaming parlance, was at the time the fastest-selling Xbox game in history. The gamer developed an almost-instant cult following, with legions of fans enthralled with its intricately constructed universes, fifty-hour campaigns, realistic terrain technology and indigenous languages created by PhD linguists hired by the company.
BioWare’s reputation for intensive research and high quality has helped set it apart in the hugely competitive, multi-billion-dollar gaming industry, where some two thousand new products are released every year. But although it has won numerous gaming awards, what has really distinguished BioWare from other third-party developers — the “hired guns” of the industry — is its push to control its own destiny and create its own brand. Unlike many of its peers, BioWare has its own marketing and public-relations team and an in-house production department that designs posters and game boxes, all of which sport the BioWare logo. It even has a web team dedicated to the growing online community of three million registered users, better known as Biowarians. “It’s really unusual for a developer to do this,” admits Zeschuk. “But we know we are the ones best able to look after our own interest. You can’t depend on other people to do that for you.”
That brand equity has allowed BioWare to make the leap from being a mere developer to creating its own intellectual property ( IP ). In 2005 it rolled out Jade Empire, the first in a new wave of games featuring company-owned IP . The move not only affords BioWare a greater cut of the profits, but allows it to benefit from promotional spin-offs like figurines and comics.
“The return is higher with our own IP ,” explains Zeschuk, whose rapid-fire speech echoes the short staccato bursts of his fast-paced video games. “The deals we are able to negotiate are better than ever.”
The increased prestige has also helped BioWare attract hot new designers from around the world. The company receives as many as a thousand resumés a month, and almost a third of its 260-strong workforce comprises foreign workers from twenty countries. That international perspective has been key to the company’s global success, says Muzyka, with 55 per cent of sales coming from outside of North America. “We’ve learned what does well in Germany, Korea, France and the U.K. We have people from all those countries who can provide a perspective and tell us what works,” he explains. “People like complicated games in Germany, and more artistic games in France. We take that knowledge and apply it to the games’ design.”
BioWare is now looking at how to penetrate even further into foreign markets, particularly Korea and China, through either licensing agreements or joint ventures with local developers. Its efforts will no doubt be bolstered by its us$300 million merger in 2005 with another independent studio, L.A.-based Pandemic Studios. The new holding, which is majority owned by a U.S. private-equity firm, will allow BioWare, with annual sales of $16 million, to self-fund its new endeavours, including a new studio in Texas. As Zeschuk points out, those goals have, from the very beginning, always aimed beyond Canada. “We don’t consider the Canadian market. We consider the global market,” he says. “To be successful, you have to look internationally.”
PE TROCHEMICAL PIONEERS
Compared with dragon-slaying warriors, water dragons and werewolves, methanol has about as much sex appeal as lint. A colourless petrochemical that looks like water and is used to make a range of products from spandex, fertilizer, and dvds to polyester carpeting, plastic bottles and plywood, methanol is the very definition of a commodity. And, for many years, that’s exactly how it was treated. When Methanex Corp. was launched in 1991, most manufacturers simply sold their products through agents. “Typically the Japanese trading companies would show up with a vessel, take the product away and give you some money for it,” says Bruce Aitken, Methanex’s CEO . “That worked nicely for a while, but it didn’t take long to realize you didn’t know who your customers were, you didn’t know what their drivers were and you didn’t know what was important to them.”
For the Vancouver-based company, it quickly became as clear as, well, methanol that the real key to success lay in not only cutting out the middleman, but somehow branding its own version of the virtually indistinguishable chemical compound. In 1994, under the new leadership of Pierre Choquette, a veteran chemical marketer who had toured the globe for Polysar and then nova Corp., Methanex embarked on a strategy that not only cemented it as the world’s leading methanol producer but established it as the industry market maker, with Methanex’s price doubling as the world benchmark.
Already in the enviable position of producing a quarter of global methanol output, Methanex wooed its customers by offering what Choquette calls “a value proposition” — security of supply and unparalleled service. The company established a network of storage facilities and terminals strategically located near each of its major markets. More importantly, it acquired its own fleet of super tankers, including the 100,000-tonne Millennium Explorer, the largest chemical tanker in the world, which allowed the company to establish a global distribution system and even rearrange shipping routes to supply customers. “It really was key to our success,” says Choquette, who remains on as chairman after handing over the CEO reins to Aitken in 2004. “By controlling the quality and the movements of the product, we could provide our customers with a service they wouldn’t otherwise get.”
It also gave the company an amazing competitive cost advantage. By deploying a tanker of that size instead of a smaller ship and refilling it as quickly as possible, Methanex saves $1 million per voyage, says Choquette. Still, for the company to remain competitive compared with low-cost producers in Saudi Arabia and Iran, it knew it would have to find additional ways to cut costs. It gradually shuttered its high-cost North American operations and migrated production to massive new facilities in Trinidad and Tobago and the southern tip of Chile, where natural gas, methanol’s main ingredient, is plentiful and infinitely cheaper. “You need to look at the lowest cost structure in the world, and you need to be competitive with it; otherwise you don’t have a sustainable business,” explains Aitken. “If our strategy had been to stay in Kitimat, B.C., and Medicine Hat, Alberta, we’d be out of business today.”
What helped make the move successful was a management team that was comfortable operating globally. Every one of the company’s executives has lived in at least three “geographies,” says Aitken, himself a New Zealander who has lived in five countries. “That gives us a perspective. We know what it’s like out there.” The company takes care to cultivate relationships and acclimatize to each country where it does business. The size of its Chilean operations has resulted in a dozen Spanish speakers working at its Vancouver office, part of a targeted career-development strategy that promotes promising employees through a variety of foreign postings. “We choose potential stars, expose them to different geographies and different functions and then bring them to head office to expand their experience,” explains Aitken. “We call it people development.
”
That’s not to say Methanex hasn’t learned some hard lessons about adapting to different markets. Choquette admits he’s probably persona non grata in Qatar after the company came very close to doing a deal there and then backed off after getting spooked by the level of risk. “It was one of the best contracts we’ve had, a great location and good partners,” he says. “But we never spent enough time educating each other on the risk. If we had, the company would be that much stronger today.”
Still, with us$1.7 billion in revenue in 2005, about 850 employees worldwide and offices from Auckland, Tokyo and Shanghai to Seoul, Waterloo and Dallas, Methanex has managed to do what few commodity producers have: take the boom and bust out of the price cycle. “Our leadership position has affected our profitability dramatically,” says Aitken. “We’ve gone through twelve quarters of top-cycle pricing. When you look at commodities, you don’t have twelve periods of top-cycle pricing — price goes up or price goes down.” But while some might attribute the buoyant returns to Methanex’s significant market share, to Aitken it’s what you do with the resource that makes the difference. “If you are just a seller,” he points out, “you are taking whatever price the market will give you.”
A PASSION THAT ’S MULTINATIONAL
Jean Hurteau can’t say exactly what made him decide to get into the cosmetics industry, but he knew one thing for sure; he didn’t want to answer to a head office based in another country or a continent away. He’d done it before — heading up development for the Canadian operations of French beauty products giant, Yves Rocher. Hurteau learned a tremendous amount reporting to internationally minded executives in Paris, but the experience also opened his eyes to the downside of being a very small fish in a very large ocean. “When you are a small branch in Canada, your business maybe represents one day of production in France,” he explains. “And your opinion doesen’t mean much.”
Why Mexicans Don't Drink Molson Page 23
