Hollowing out is only a threat in the absence of innovative business
strategies and inspired government policy
The Institute for Competitiveness & Prosperity releases new findings on
the importance of competition to stimulate Canada's prosperity
TORONTO, Sept. 18 /CNW/ - For Canadians concerned about the "hollowing
out" of our economy, the best defence is a good offence. That is the
Institute's response to the issue of foreign takeovers, which has risen in
prominence over the past few years with the buyouts of Canadian icons like
Alcan, Dofasco, Falconbridge, and Inco.
While these takeovers have been highly visible, the Institute's research
shows that, over the past two decades, the number of global leaders in Canada
has actually increased. They are the Canadian firms that are in the top five
globally in their business niche. In 1985, Canada had 33 global leaders; the
number has grown to 77 this year. These global leaders, like McCain, Open
Text, and Research In Motion, have competed on the basis of innovation,
globally significant capabilities, and global expansion to generate
Although foreign takeovers usually mean that a Canadian head office
becomes a foreign branch office, there is no solid evidence that such
"downgrades" have a negative impact on Canada's prosperity. In fact, such
foreign investment in Canada contributes to our productivity and prosperity.
Head offices, whether Canadian- or foreign-owned, are important sources of
high-value jobs, and public policy should not discourage foreign takeovers in
order to preserve Canadian head offices.
These are among the key conclusions of Working Paper 11, Flourishing in
the global competitiveness game released today by the Institute for
Competitiveness & Prosperity.
"Hollowing out is one of those terms that evokes fear among Canadians,"
said Roger Martin, Dean of the Joseph L. Rotman Schools of Management at the
University of Toronto and Chairman of the Institute for Competitiveness &
Prosperity. "It conjures up images of an economy where people have low-value
jobs and carry out decisions made in foreign countries. But it really isn't a
good description of the impact of foreign direct investment." The Institute
and others conclude that foreign investment in Canada has increased
productivity and the competitive pressure on Canadian firms for the benefit of
So, polices to block foreign takeovers will not raise our economic
performance and our standard of living. In fact, they will do more harm than
But if Canadians are worried about hollowing out, then the best solution
is to create an environment in Canada that stimulates the growth and
development of globally competitive firms. "Successful Canadian firms that are
taken over by foreigners typically have not expanded their operations outside
of Canada in a major way. In today's globalizing economy, firms need to
establish a global footprint to thrive and survive. Foreign firms that want to
expand in Canada will first consider buying an established business here,"
said Martin. "Our research indicates that more than half of the Canadian firms
taken over by foreigners were not aggressively driving for global expansion."
Management teams have to focus on global expansion of the successful business
models they have developed here in Canada - or risk being taken over by more
capable management teams from abroad.
The Working Paper applauds the conclusions of the federally appointed
Competition Policy Review Panel, headed by Lynton "Red" Wilson. The Panel,
which released its report Compete to Win in June, advanced the overall theme
that the best defence for Canadian companies is a good offence. It
acknowledged that it is difficult for them to win in the increasingly
competitive world, but they cannot wait to begin taking on the challenge.
Trying to shield our firms from global competition will only delay the
challenge and make it more difficult to face.
The Working Paper and the Competition Policy Review Panel conclude that
more competitive pressure placed on our businesses will lead to the benefits
of more innovation and higher productivity. In turn, this will raise our
economic performance and prosperity for us and future generations.
Martin concludes, "If Ontario and Canada are to achieve their full
economic potential, we need inspired public policies to lower the cost of
investment, reduce barriers to competition, define and support innovation more
broadly, and improve our understanding of the needs of existing and aspiring
global leaders. That way our firms and people can compete to win in the
international arena - and realize sustainable prosperity."
About the Institute
The Institute for Competitiveness & Prosperity is an independent
not-for-profit organization established in 2001 to serve as the research arm
of Ontario's Task Force on Competitiveness, Productivity and Economic
Progress. The Institute is supported by the Ontario Ministry of Economic
Development and Trade. Working papers published by the Institute are primarily
intended to inform the work of the Task Force. In addition, they are designed
to raise public awareness and stimulate debate on a range of issues related to
competitiveness and prosperity.
Please visit the Institute's Web site www.competeprosper.ca for more
The complete report can be downloaded directly from:
For further information:
For further information: James Milway, Executive Director of the
Institute for Competitiveness & Prosperity at (416) 920-1921 ext. 222