OTTAWA, Jan. 19 /CNW/ - Canadian companies that invest in other parts of
the world are often seen as doing what's best for them, not for Canada.
A new Conference Board of Canada study provides a different picture of
Canadian direct investment abroad (CDIA): it largely produces
productivity, trade and other benefits—both for Canada and its
"The strongest performing Canadian companies use direct investment
abroad to improve their performance by accessing new markets,
technologies, talents, suppliers, and resources," said Danielle
Goldfarb, Associate Director, International Trade and Investment Centre
and author of Direct Investment Abroad: A Strategic Tool for Canada (http://www.conferenceboard.ca/e-library/abstract.aspx?did=3958).
"Rather than detracting from Canada's economic activity, the evidence
shows that investments abroad translate into overall long term benefits
for Canada and its regions."
Direct investment abroad is sometimes characterized as shipping jobs and
profits overseas, especially in the United States. The debate has been
less intense in Canada compared to south of the border; nevertheless,
Canadian politicians have generally avoided openly promoting investment
overseas. At the same time, business leaders— particularly in sectors
such as financial services and mining —have used CDIA as a strategic
tool to their businesses and maintain international competitiveness.
In contrast to the majority of research on the effects of foreign
investment —which focuses on the impact of investments into Canada—this Conference Board analysis emphasizes the impact of Canadian
investments abroad back in Canada.
The research is based on existing empirical evidence (which is limited)
and theoretical analysis on the effects of investing abroad. The
evidence indicates that Canadian acquisitions or expansions abroad
yield overall benefits for Canada, its provinces, and its cities.
Improvements in productivity, jobs, trade, investment, tax revenues, and
worker skill levels are among the benefits, along with the potential
for some relief from tight labour markets that constrain Canadian
Not All Investments are Equally Beneficial
While these are the likeliest overall effects, the analysis makes clear
that not all investments are alike—and not all are equally beneficial
to Canadian companies or to Canada as a whole. If companies go abroad
to access new markets or to undertake different activities than those
at home, the benefits to Canada are likely to be greatest. However,
where activities abroad replace Canadian-based ones—including those
mergers or acquisitions where duplicate jobs and activities in Canada
are cut—some domestic workers could lose their jobs in the short-term.
And, where there is a negative impact on jobs from CDIA, those workers
with fewer skills are most likely to have their wages cut or lose their
Nor Do All Companies Benefit Equally
Moreover, not all companies will benefit equally from going abroad.
Companies that are strong performers in Canada are likeliest to benefit
from direct investment abroad, whereas struggling companies should stay
home - investment abroad is not a panacea for weak performers.
While businesses drive investments abroad, policy-makers have a role to
play in facilitating the types of CDIA that will be most beneficial to
Canada and its regions. The most important actions for governments are
to create a favourable competitive environment in Canada through
transparent regulations, competitive tax policies and investment in
both education and infrastructure.
Canadian public policies should also eliminate barriers that discourage
or penalize firms for investing abroad. For example, Canada should not
impose a tax on repatriated profits that have already been taxed in
other jurisdictions. Some foreign profits return to Canada in the form
of dividends, while other earnings are reinvested elsewhere, generating
future wealth for Canadian firms.
The report is published by The Conference Board of Canada's
International Trade and Investment Centre (http://www.conferenceboard.ca/ITIC/default.aspx).
The Centre is intended to help Canadian leaders better understand what
global economic dynamics —such as global and regional supply chains,
barriers to trade, US policies, or tighter border security—could mean
for public policies and business strategies.
SOURCE CONFERENCE BOARD OF CANADA
For further information:
Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext. 448