FPinfomart.ca

Canada Looks for Spot in the Big
Picture
The Washington Post
Wed 29 Dec
2004
Page: E01
Section: Business
Byline: By Doug Struck

Source:

TORONTO -- A pair of spectacular stumbles by large
Canadian businesses has shaken the sense of corporate pride in Canada and
raised questions about the country's role in the global marketplace.

The latest example is the tailspin at train- and plane-maker Bombardier
Inc., one of Canada's biggest companies and the pride of Quebec. The man
recruited to save the company, Paul M. Tellier, was ousted on Dec. 13 by
Bombardier's founding family. His departure prompted analysts to worry about
Canada's future in the aerospace business and the government to promise to try
to save the company. Bombardier's stock price has plunged in four years from
nearly $25 to around $2 a share.

That comes as problems continue for Nortel Networks Ltd., the Canadian
communications giant brought to its knees by the collapse of the Internet
bubble in 2000. After slashing its workforce by two- thirds, the company
seemed to be struggling back when it announced that its 2003 profit figure was
false. Its top executives were fired, criminal investigations began and
layoffs resumed.

Air Canada, the nation's icon airline, is trying to emerge from
court-supervised restructuring.

"There is definitely cause for concern," said Joseph D'Cruz, professor of
strategic management at the University of Toronto. "Nortel and Bombardier were
national champions. We were very proud of them. They were Canadian companies
with a global footprint. Their accomplishments were very important
psychologically and economically. That has been really shaken."

The public failings have put the spotlight on the paucity of Canadian
heavyweights in the multinational corporate arena. The list of largest
Canadian companies is dominated by energy and banking concerns that keep the
core of their business at home.

"We have only a few big multinationals," said Karl Moore, a management
professor at McGill University in Montreal. "I think we have fallen short on
the global level. But that's been a 30-year criticism in Canada."

More positive, Moore said, has been Canada's expansion in the U.S. market
under the North American Free Trade Act. Many of the successes under NAFTA
have been with specialized product lines marketed on both sides of the border,
he said.

Some Canadian retailers succeed in the United States. Canadian drug chain
Jean Coutu Group Inc. recently acquired 1,550 Eckerd drugstores in the United
States. Roots Canada Ltd. has taken its apparel brand across the border.
Circle K convenience stores are owned by a Quebec chain, Couche-Tard Inc. Aldo
Shoes Inc. operates 180 stores in the United States and is growing.

And Canada does have some global players, although they sometimes go
unnoticed, analysts said.

The Montreal-based aluminum maker Alcan Inc. acquired French manufacturer
Pechiney SA in January to become the world's second- largest producer,
operating in 58 countries with 88,000 employees.

Magna International Inc., an auto-parts maker that began in an Ontario
tool-and-die shop, is one of the largest in the world. It is forging new
ground by becoming involved in final assembly at some BMW and DaimlerChrysler
plants in Europe.

Cirque du Soleil has 3,000 employees worldwide to put on its shows in 100
cities around the world. The Four Seasons and Fairmont hotel chains are based
in Canada. Manulife Financial Corp. and Sun Life Financial Inc. sell services
worldwide.

Canada's traditional big industries -- energy, oil, natural resources --
draw notice from foreign investors in part because of the high prices those
commodities are bringing. Noranda Inc., Canada's largest mining operation, is
being courted by China Minmetals Corp., to the apprehension of some here.
Stelco Inc., Canada's biggest steel company, is under court protection and a
Russian firm, Severstal, has bid for the company.

Corporate buyouts have long been a source of controversy in Canada, which
is always nervous about losing its national identity to the United States.

"It's been an ongoing problem since the beginning of the country," Moore
said. "We are living next to a dominant economy, the most vibrant in the
world."

Still, it stung Canadians this summer when the Hudson's Bay Co., the
original fur-traders' store that helped make Canada, was courted by Target
Corp. Wal-Mart Stores Inc. has bought out retailers here, just as it has in
the United States, and controls an estimated 52 percent of the Canadian
department store industry. Molson Inc., which makes the Canadian everyman's
beer, will vote on whether to merge with Adolph Coors Co. next month.

Even Tim Hortons, a homegrown fast-food chain that markets itself with
sentimental ads of displaced Canadians longing for its doughnuts, is a
subsidiary of Wendy's International Inc.

Other companies encourage such confusion. Future Shop, known as a Canadian
retail electronics giant, is a subsidiary of Best Buy Co. Radio Shack promotes
its business here with a maple leaf. Starbucks has moved onto the ground floor
of Chapters, a Canadian bookstore.

Canada periodically worries about warnings that foreigners are gobbling up
its companies and "hollowing out" Canada's corporate soul. Studies generally
do not support the fears, however.

The C.D.
Howe Institute, a business-oriented think tank, concluded
that "hollowing out" is largely a myth, and that foreigners control about 20
percent of Canadian corporations -- about the same proportion as 15 years ago.

"Is there something wrong with business in Canada? The answer is no, " said
Finn Poschmann, associate director of research at the
institute. "There is some resistance to firms becoming big and powerful in
part because Canada is a small country."

For example, Canadians have been "very allergic" to allowing Canada's banks
to merge with insurance companies, he said. While such mergers are acceptable
in the United States, Canada has only five major banks, and consumers and
regulators worry about mergers weakening competition.

In addition, he noted, combined personal and corporate tax rates are higher
in Canada than in the United States, as are taxes on capital gains, helping to
slow the accumulation of capital.

"It's a continuing struggle to convince governments to maintain open and
outward policies that permit companies to grow and get large," Poschmann said.

Partly as a result, many of the biggest Canadian companies are subsidiaries
of U.S. companies, such as International Business Machines Corp., Ford Motor
Co. and General Motors Corp.

D'Cruz said worries that such subsidiaries are not Canadian enough are
unfounded.

"When you think about Canada, you have to think very differently than in
the U.S.," he said. "A lot of the large-scale business activity here is
American companies operating in Canada. But that's not bad. What we have is a
whole range of large-scale American enterprises operating with deeply local
roots.

"The best example of that is IBM. IBM Canada talks and acts like a local
company," D'Cruz said. "It has positioned itself with the Canadian government
as a company with deep roots in Canada." Such subsidiaries provide employment
to Canadians, pay Canadian taxes, invest in research and development in
Canada, and spend in local Canadian markets, he said.

And they are successful. The Canadian subsidiaries of U.S. automakers now
produce more cars in Ontario than they do in Detroit, for example.

U.S. subsidiaries "may be a detriment to building up national pride. But
they are not a deterrent to the economy," said Douglas Porter, senior
economist at BMO Nesbitt Burns Inc. "I think over time we will see more large
multinationals grow up from Canada. The overall environment has become more
favorable. Corporate tax rates are coming down, and NAFTA is helping."

But D'Cruz said that for Canadian corporations to take on an international
role, their leaders may need a different outlook.

"The unfortunate thing is too many Canadian businessmen define their
opportunities as Canadians," he said. "Too few of them define the global stage
as the one they want to play on. They are comfortable in Canada. But the world
today makes that a very difficult strategy. Globalization has made it
unviable."

Length: 1295 words