Issues in Global Business and Strategic Concepts
Canada is richly endowed with natural resources, including oil, natural gas, coal, and uranium (Berdahl & Gibbins 2014). The country also enjoys an attractive business environment because it has the resources, market, and efficiency required for a successful business venture. However, analysts are concerned about Canada's decline in its economic growth in recent years, citing her overreliance on energy as its largest export and the U.S market as the leading causes of the economic slump (Dancygier & Stefanie 2015). There is also the issue of the strengthening of the Canadian dollar against other major world currencies, thus making Canadian products more expensive in the international market. In addition, Canada has seen her manufacturing labour costs greatly outstrip those of the neighbour, the U.S. The premise of this essay is two-fold. There is a need to examine Canada's recent development and how it affects the global economy and areas that the country needs to prioritise in an attempt to emerge from the current economy.
One of the key aspects that determine a country's economic development is the ability to foreign direct investment (FDI). In this case, three key drivers are essential in attracting a firm to invest in a host country: resources, markets, and efficiency (Ajami et al. 2014). The UNCTAD in its World Investment Report ranks Canada among the ten leading beneficiaries of FDI (UNCTAD 2015). This is in recognition of the country's attractive business environment. Elsewhere, the World Bank, in its 2016 report on Doing Business, ranks Canada in position 14 in terms of attractiveness in doing business, out of 189 countries. Canada is endowed with natural resources, mainly oil and gas. This makes the country especially attractive as an investment destination. For example, between 2005 and 2009, the country's oil, gas and mining sectors realised an average of 32% in FDI inflows (IBP, Inc 2012). However, this attractiveness has been seen to fade in recent years as more cost-competitive market opportunities like Latin America continue to emerge. However, Canada has an educated and skilled workforce, and this has helped to improve the country's attractiveness as an FDI destination.
In terms of the market, Canada is not regarded by foreign companies as an especially attractive market. This is because the country is characterized by an aging population, has a small domestic market, and its population is growing at a slow pace (International Monetary Fund 2015). However, foreign companies still seek to have a presence in Canada as it provides them with easy access to the U.S. market which is significantly larger, through the NAFTA (North American Free Trade Agreement) and FTA (Free Trade Agreement). Canada also has low labour productivity and this in turn its attractiveness as an FDI destination. Over the past two decades, Canada has seen her merchandise trade with Mexico grow 8 times to nearly CA $ 37.8 billion (Government of Canada 2016). This is an indication that the Mexico-Canada merchandise trade has been growing at an average rate of 10.1 percent per annum (Government of Canada 2016). However, considering that U.S President-elect Donald Trump did not shy away from his registering his displeasure with this trade agreement during his campaigns, it remains to be seen whether he will warm up to a renegotiation of NAFTA.
The CETA (Canada-EU Comprehensive Economic and Trade Agreement) is good news to the Canadian economy. This is because the agreements make Canada the second largest investment and trade partner with the EU (Hübner 2011) and is hence a key actor in most of the global issues of importance to the country. This agreement will see Canada end custom duties levied on all goods originating in the EU. This will benefit EU producers as they will now have a wider market for their goods. Eliminating duty on EU products will also be beneficial to the EU processing industry. On the other hand, Canada will enjoy improved access to the EU market for such sensitive products as pork, beef, and dairy products (Government of Canada 2015). Additionally, this agreement will provide an accessible market for Canadian fish in a mutual relationship that will enhance EU processing industry.
The issue of FDI is also tied to the effects of globalisation.
As globalisation has enabled an increasingly large number of foreign-based companies to enter into the Canadian market mainly though mergers and acquisition (M&A), this could cause positive demand shocks in the economy, thereby influencing the immigrant labour market (European Commission 2016). The implication is that low-skill workers in Canada are not immune to the labour market pressures caused by globalisation. In particular, low-skill workers who are comparatively sheltered from threats linked to trade and outsourcing are highly vulnerable to competition due to immigration. Consequently, there is bound to be a rise in native outflows in search of better paying jobs. Donald Trump has threatened to have the United States withdraw from both the TPP (Trans-Pacific Partnership) and the NAFTA as well, on grounds that immigrants have destroyed jobs in the home economy by subjecting native workers to unfair competition.
Amid all the promise that Canada presents as an attractive FDI destination, critics content that because her exports are mainly concentrated in the energy and mining sectors (Ajami & Goddard 2013). With Canada having focused on the U.S. as its leading trading partner, there is growing fear that the U.S market is currently adequately supplied. Secondly, Canadian products have become increasingly expensive over the past decade owing to the dramatic strengthening of the Canadian dollar while the US is turning to Mexico as a cheaper manufacturing base and source of cheap labour (Kwong 2016). Also, there is growing skepticism that the CETA deal between Canada and the EU could face growing public opposition and weakened political support (Hessing, Howlett & Summerville 2011) amid growing anti-globalisation sentiments.
If at all Canada is to emerge from its current situation, the country needs to prioritise on three key areas: the manufacturing sector, the workforce, and energy security.
Promoting the manufacturing sector
The manufacturing sector is a key component of the Canadian economy, accounting for nearly 11 percent of the country's GDP (Government of Canada 2015). This high-tech, high-skilled sector of the economy employs some 1.7 million Canadians directly, while also supporting a further 3 million indirectly. In 2014 alone, the manufacturing sector in Canada invested over $ 14.8 billion in the country's economy, and this money helped to complete various development projects across the country (Government of Canada 2016). However, the sector has come under increased pressure from a strong Canadian currency that has in turn made Canadian products expensive. In addition, The US, Canadian's leading business partner, is turning to Mexico as a cheaper manufacturing destination and source of cheap labour. In order for the Canadian Government to turn around the current situation, it needs to prioritise on the following areas as a means of expanding the Canadian manufacturers' existing footprint:
Lower taxes will provide a competitive business environment by motivating businesses to reinvest profits into their businesses, resulting in growth and enhanced ability to compete in the global economy (Ajami & Goddard 2013). This will also help to create jobs locally.
The Canadian Government should enter into various trade agreements with a view to diversifying its exports to other markets. Foreign markets account for nearly 61% of the total merchandise exported by Canada (Government of Canada 2016). Concluding and renewing trade agreements such as TPP, NAFTA, and CETA, will help create a larger market for Canadian goods and help create more jobs.
Investing in workforce training
The modern-day manufacturing sector is highly technical and requires that the workforce be highly skilled. One way of improving the skills of the workforce in the manufacturing sector is by introducing new programmes that support apprenticeship. In addition, employers could also be encouraged to contribute towards job grants with a view to enabling Canadians to access the training required to either improve their skills set or get gainful employment. In addition, the Canadian government could support the manufacturing sector by investing in research and development and advanced technologies with the goal of supporting business innovation (Hessing et al. 2011). Considering that the manufacturing sector relies on new ideas and innovations to meet the ever-changing demands of its consumers, it is important that the Government assumes a key responsibility in regards to supporting the development of novel technologies.
Diversifying energy market
As noted earlier, Canada relies too much on the US market for its energy supplies, including natural gas, refined and crude petroleum products, uranium, and electricity (Government of Canada 2016). In 2015, 94% of all energy exports from Canada went to the U.S. (Government of Canada 2016). Canada also faces other energy predicament, including the gas and shale oil revolution, pipeline delays, environmental politics, and energy price volatility. Additionally, the country has to contend with developments beyond its borders that could pose a danger to its long-term economic prosperity. For example, it is not clear yet what impact a Trump-led government will have on Canada's current relations with the U.S, and there is the possibility that the new government could impact energy exports to the US.
It is important therefore that the country handles these issues in a more coherent and comprehensive manner by establishing a strategy aimed at preserving and improving Canada's energy security (Thompson & Randall 2011). In the long-term, Canada may be better off relying on the Asian market for its energy exports, as opposed to the United States. This statement is supported by several key factors. First, China is currently the leading energy consumer in the world, importing natural gas, coal, oil, and LNG (liquefied natural gas) in large volumes (Moak, Lee & Engel 2016). Secondly, Japan is the leading importer of LNG, followed by China and South Korea (Moak et al. 2016). Thirdly, Asia will account for two-thirds of all barrels of crude oil imported globally by 2040, thereby becoming the leading consumer of natural gas globally. Canada should thus focus her attention on meeting this growing demand for energy from Asia and in effect, seek to diversify her energy exports from the US into Asia. In the meantime, Canada embarks on a strategy of building relations with the leading energy consumers in Asia namely, China, South Korea, and Japan in a bid to exploit the opportunity of being a reliable and stable partner in terms of supplying energy exports. Moreover, the Canadian Government should start developing plans on how it intends to finance the required oil export infrastructure.
Over the past decade, the Canadian dollar has appreciated significantly against leading world currencies. This has had a number of negative implications on the Canadian economy. For example, the Canadian labourforce has become competitive, with the result that Canada is fast losing its export share to Mexico, thanks to the latter's growing attractiveness as a preferred manufacturing base and the availability of cheaper labour.
One way of overcoming this challenge is to forge a partnership with Mexico in a bid to regain the competitiveness of Canadian manufacturing companies. In this case, the Canadian companies, under this partnership, could concentrate on more sophisticated technological processes while the Mexican manufacturers focus on assembly. Such a partnership would enable each country to take advantage of its key strengths. For example, Canada can capitalise on its high-level engineering capabilities and distribution system, considering that the country has a highly educated workforce (Kwong 2016).
On the other hand, Mexico, which has a younger and cheaper workforce, could focus on the final assembly of the manufacturing chain, in addition to handling shipping arrangements. A good example of such a partnership is the Bombardier Aerospace manufacturing facilities located in Querétaro, Mexico. In this case, the aircraft engineering plans and designs are usually drawn in Canada (Bombardier 2014) whereas Mexico is tasked with the responsibilities of carrying out hands-on construction and wiring.
Canada has emerged as an investment destination of choice largely due to its overabundance of natural resources, an educated workforce, and access to the larger U.S market. However, increased overreliance on the U.S market, overdependence on the energy sector and increased manufacturing costs have combined to derail Canada's economic growth. If at all the country is to turnaround the current situation, it needs to look like a market for its energy products. This will overcome Canada's overreliance on the U.S market. Canada also needs to enter into more bilateral trade agreements such as CETA to further increase its export market. More importantly, Canada should endevour to enter into partnerships with such countries as Mexico to benefit from the cheap labour in Mexico while it capitalises on its high technical capability.
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