LOUD AND CLEAR by Denzil Doyle

It is unfair for our journalists and politicians to scold Canadian business people for being parochial. They would be better advised to take the time to understand the relationship between ownership and trade and how it is being affected by the forces of globalization.

Doyle%2C%20Denzil-120X185.jpg

It’s harder to get to India when you start from here
From SCAN's Print Edition

A recent Globe and Mail article (March 5th, 2008) was critical of Canadian companies for not being aggressive enough about doing business in India. It made frequent reference to a report by the Canadian Chamber of Commerce that points out that Canada’s exports to India are less than one percent of our total exports and our investment in that country is less than one percent of our direct foreign investment. It praised companies like Bombardier in transit vehicles, SNC Lavalin in roads and energy, Magna in auto parts, and Sun Life in Insurance for having made the effort to build a presence in India. However, the article demonstrated a poor understanding of how Canadian industry works, particularly that segment of it that is dominated by small and medium enterprises (SMEs).

Most of Canada’s exports go to the United States and they come from companies that are subsidiaries of U.S. companies. The mistake that the authors of such articles make is that they assume that those subsidiaries actually have mandates to sell their products and services to India and to make investments there. Using the high-tech industry as an example, what happens when a Canadian company is taken over by a U.S. company is that the mandate of the acquired company is reduced to the supply of a particular product or service to the parent company and the parent company either consumes the product or service directly (e.g. the development of software) or it takes responsibility for distributing it to places like India through its world wide distribution and support network. While Canada is the country of origin, the product or service does not show up on our trade statistics as an export to India.
One might ask the question: “Does it not all even itself out since many Canadian companies have U.S. subsidiaries? Are they not passing their sales to India through the books of their Canadian parents?” The answer to both those questions is No but the reasons are very complex.
The main reason for a Canadian company buying a U.S. company is to access the U.S. market and the acquired company is usually left as a standalone company because the U.S. market is big enough to warrant it. When the Canadian company does decide to go after the Indian market it will probably do so by using the U.S. subsidiary because it likely already has a suite of products and services that is selling in India.
What is happening is that Canadian products and services are getting to India but they are not being counted in our trade statistics. Also, since they are getting there through what are effectively U.S. sales agents, they are not being sold with the same sort of enthusiasm as if they were being sold directly. Very often the U.S. sales force has a competing product in its bag of tricks. The U.S. market will take priority over the Indian market for a long time after a typical takeover. It is interesting to note that the companies that were praised for their presence in India were Canadian-based multinationals that somehow have avoided being taken over by U.S. companies along the way.
It is unfair for our journalists and politicians to scold Canadian business people for being parochial. They would be better advised to take the time to understand the relationship between ownership and trade and how it is being affected by the forces of globalization. So long as our manufacturing facilities are mostly U.S owned our trade to the U.S. will look good and our trade to India will look bad. They will find that similar forces are at play when it comes to making foreign investments. Branch plants typically do not have mandates to make investments in India.
Guru in one guise, angel in another, Denzil Doyle is a member of the Order of Canada, a professional engineer, founder and former CEO of Digital Equipment Corp. in Canada, company director, mentor, consultant, investor and author of the best-selling ‘Making Technology Happen’. He can be reached at ddoyle@doyletechcorp.com.

Submit a comment

Please leave your name, which will be used to sign your submission to the SCANsite. Thanks for contributing your thoughts. Come back again. Tony Patterson, Editor & CEO.

© 2006 - 2009 SCAN
INTEGRITY INTELLIGENCE INFORMATION
Site by Citadel Rock
SCAN