By Theo van de Kletersteeg

This issue of Canadian Sailings contains articles reviewing the history, present state and possible future of Ontario’s automobile manufacturing industry. As is evident from those articles, Ontario’s assembly plants are essentially subcontracting operations serving the requirements of their global shareholders. They do not have global product mandates and, with almost negligible exceptions, produce only products for the Canadian domestic market, and for the U.S. market. The “branch-plant” characteristic of the Canadian economy was a response to tariff walls that had been erected to “protect” Canadian manufacturers from foreign (mostly U.S.) suppliers that had achieved low-cost production in their own domestic markets and could flood small markets like Canada with very competitively priced products. To overcome the negative impacts of tariffs and other protective measures, foreign companies established subsidiaries in Canada to manufacture and distribute goods in Canada.

Although these measures did protect Canadian industry, it also had the negative effect of creating a “branch plant mentality”, which manifested itself as relying on the foreign parent company to solve problems, and to generate ideas. Branch plants were typically given production and distribution mandates for Canada only, with foreign parent companies exploiting opportunities elsewhere. Canadians were generally not encouraged to be innovative, or take risk, or have commercial ideas beyond Canada.

It has taken decades for attitudes to change, and for a wider range of corporations to regard the world as their market, rather than being focused exclusively on Canadian and U.S. markets. Companies engaged in natural resource exploitation have done a great job expanding the scope of their operations, and Canadian mining companies are now present on every continent and operating in virtually every country. Other industries, such as the financial service industries, have met the challenge of global competition by establishing a strong presence in foreign markets. However, while many corporations have improved their competitiveness, it is not clear how Canadian companies that are federally regulated would fare if they were no longer protected from foreign ownership restrictions. Such federally-regulated industries include major corporations in financial services, transportation and communications, among others.

The key to the future prosperity of Canadians is to build companies that have the size, scope, productivity and innovation to be capable of becoming global players. The transformation from a branch-plant economy to where we are today has taken fifty years, and further progress will be slow and difficult, but we must progress. We must find ways of using time to accomplish things, not talking about accomplishing things. While we talk, our global competitors keep innovating and capture more and more market share. Our business enterprises must focus on innovation, export opportunities and productivity enhancement. Our global competitors do, and we cannot allow them to create a gap between them and us that would make catching up impossible.

Nortel was a Canadian dream that is no more. Blackberry came close to disappearing but, through the last-minute introduction of competent management still has a better-than-even shot at recovery, and regaining its lost glory. Bombardier is another great company that has been challenged along the way, but has great opportunities to sell advanced aircraft in developed and emerging markets alike.

What do (or did) these companies have in common, aside from their reliance on innovation to create value? These companies have global product mandates. They are not contract manufacturers for foreign-based corporations. It’s an important distinction, requiring different mindsets, skills, experiences and resources. The bottom line is that opportunities for contractors are limited, whereas the opportunities to those that exploit global product mandates are only limited by their skills and resources. “Masters in our own house” is a term that is well familiar to anyone living in Quebec, and this is a term that is well applicable to countries that have a relatively large number of global brands among their resident corporations. Canada has very few global brands and, as a result, is more vulnerable to being impacted negatively by global trends, as opposed to having greater control over shaping global trends.

After the current dust settles, Ontario must find ways and means to create significant enterprises with global mandates that in years to come will enable it to once again play a leading and innovative role in Canada’s industrial future.