Canada's declining ability to attract global product mandates must be addressed: report

As multinational enterprises (MNEs) go, so goes Canada's economy. This truism takes on particular relevance when considering anecdotal evidence from a host of business, research and government leaders that the Canadian subsidiaries of MNEs are losing the battle for global product mandates. That leaves Canada with a host of challenges that must be confronted and acted upon to reverse the trend.

Despite an impressive list of advantages, Canada is saddled with serious obstacles and policy shortcomings that require changes in government, academic and Canadian-based subsidiaries to strengthen the investment environment, according to a new report from the Public Policy Forum (PPF).

"The most fierce competition is not between nations but within companies to win global mandates … We've got a lot going for us (but) other countries are moving more actively to become more competitive. We're middle of the pack at best and we've heard anecdotally that we are losing global mandates," says PPF president and CEO David Mitchell. "Since the US rebound in the automotive sector we've been losing out to the US and Mexico. There are the complexities of government and we have a complex system of governance so we don't make it easy."

Entitled Winning Global Mandates: Lessons from Canadian Leaders, the report builds upon previous PPF initiatives and synthesizes input from dozens of interviews and roundtable participants from five key business sectors. The report presents a hefty list of recommendations for government, industry and academia (see chart).

National coordinating agency

Chief among the report's recommendations is a proposed intergovernmental innovation and investment agency to navigate Canada's various regulatory regimes and to develop stronger relationships with decision makers. Conceived along the lines of ProMéxico and Investissement Québec, such an agency could act as a primary contact point for MNEs and liaise with government on ways to streamline policies and standards.

"A lot of senior people we spoke to for the report referred to Investissement Québec in a very complementary fashion. It has helped sectors like aerospace and there's nothing like it on a national basis," says Mitchell. "Mexico has ProMéxico which is arm's length and works very well. This is one area that could be done and many multinationals say a coordinating agency like this would be extraordinarily helpful. It would include the research side as well and could be quite transformative."

"Canadian governments and business leaders are often reluctant to commit resources to ambitious projects and R&D initiatives when upfront costs are required. ... Governments’ hesitancy to fund or incent unproven initiatives has also stymied innovation and been a source of frustration. Together, public- private aversion to risk has acted as a significant barrier to investment and has limited Canada’s potential for growth."
-Winning Global Mandates report

Mitchell says that in the absence of a national body and a coordinated industrial strategy, provinces have begun to go it alone, particularly Quebec and Ontario.

"The data we looked at suggest that those two provinces have been successful and a bit more aggressive in this area," he says. "We don't see much (national) industrial strategy anymore but the provinces are still doing it. That suggests a national coordinating body has some merit."

The automotive sector in Ontario and the pharmaceutical sector in Quebec have taken major hits in recent years as MNEs seek jurisdictions that offer the necessary talent, aggressive incentives, simplified bureaucratic and regulatory regimes and lower wage costs.

As a relatively high-cost jurisdiction, Canada must compete on the basis of its skilled workforce, competitive business environment, low business taxes and multi-sector partnerships.

Even so, Mitchell says the onus is also on the leaders of Canadian subsidiaries of MNEs to up their game and become more engaged in their supply chains, communities and government advocacy.

"They need to collaborate more, up their Canadian-ness and celebrate their successes," he says, pointing to Pratt &Whitney Canada as a Canadian subsidiary that has succeeded on all fronts. "Subsidiaries have to develop reputational capital."

Another perennial issue raised by the report is the danger of brain drain. Mitchell says talent tends to flow in all directions but he worries that the net benefit to Canada may be slipping.

"We're finding that with the continuing weakness of the economy some sectors are vulnerable. In the area of nuclear energy — especially in Ontario — we're losing physicists to the UK and elsewhere," he says. "Engineering in Canada is also not in the vanguard right now and post-secondary is lagging in this area. Winning global mandates can help with Canada's human capital dimension. Global companies require it and is at the top of their list of considerations."

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