One of the most important contributors to the hol- lowing out of Canada’s economy has been the evolution of global multinationals. For many Canadian subsidiaries this has meant diminished responsi- bilities and strategic decision-making being transferred else- where. However, for other Canadian subsidiaries, such as, Pratt & Whitney and IBM, it has meant new regional and even global mandates. This is a phenomenon which cuts both ways for Canada. We lose much and win much. The challenge, of course, is to have more in the win column than in the loss column.
Increasing numbers of foreign multinational firms, which constitute a very substantive part of Canada’s economy, are adopting global strategies. The biggest result of this has been a pulling back of strategic decision-making to the home country of the multinational. For the home country of the multination- al this is good news. The jobs created are well paid, often strate- gic in nature and hence more interesting. On the flip side, it is more often than not bad news for foreign subsidiaries, like those in Canada. Canada’s problem is that we have relatively few large multinationals where we are the home country and thus the nation that gains from the inflow of these strategic jobs. When it occurs at a Bombardier or Alcan this is good for Canada but we simply don’t have enough of this type of firm to enjoy much in the way of gains.
There is hope, though. Over the last 10 years we have seen a more positive side of this trend. The underly- ing logic of having to take a global strategy is accepted ,however, and multinationals are increasingly question- ing why, when a global strategy is adopted, the global activities must be moved only to the home country. What follows from this question is what is called ”œdecentralized centralization.” Sounds like an oxymoron but it actually makes sense. Under a global strategy you must centralize, but why not spread key points of centralization to key lead countries in the critical parts of the world economy? For example, Bombardier has in effect three head offices: the overall corporate head office in Montreal, the head office for aerospace (also in Montreal) and the transporta- tion head office in Germany. Other firms, IBM and Nokia, to name two, divide key global responsibilities more fine- ly, by product line.
Lead subsidiaries are increasingly taking on global and/or regional roles. This makes good sense when you realize that one of the greatest advantages if not the greatest advantage of being a global firm is the opportu- nity to learn and source innovations from multiple places around the world. Long gone are the days when people thought that all new ideas in an industry originate from one place.
Today, multinationals must be quick to adopt new ideas from Europe, North America, Japan and the Asian Tigers, because these are the key areas for innovation and R&D. Undoubtedly the Silicon Valley in California is the most productive place in the world for high-tech innovations, but is it the only place? Not at all, as Sony in Japan, LG in Korea, Philips in the Netherlands and RIM in Waterloo all contribute to the plethora of new high-tech products produced every year. The vast bulk of the world semiconductor industry is located in a small number of countries: Taiwan, Singapore, Japan, the US and a few countries in Europe.
The list of lead subsidiaries in most industries is a relatively short one: Japan, Korea, Taiwan, India, China, the UK, Germany, France, the US, Canada, perhaps Sweden and the Netherlands. Fortunately for us, Canada generally makes the list. This fits with Harvard’s Michael Porter’s cluster theory presented in his The Competitive Advantage of Nations. Why are these countries heading the list of lead subsidiaries? Education systems, well-trained and experienced workforces, existing competitors who keep a company sharp, demanding lead- ing-edge customers, and competitive- ness-friendly governments are among key factors. These are advantages we have: being on the list doesn’t guarantee our place. There are newcomers, China and India among them, whose presence forces others to fight to be more compet- itive or move to the B league.
Thus, as a firm centralizes to build its global strategy, lead subsidiaries are increasingly the place where global and regional strategies are located. The challenge for Canadian subsidiaries is clear. Make sure you are a lead subsidiary which is more than capable of interna- tional responsibilities, be it in R&D, manufacturing, marketing or customer support. Many Canadian subsidiaries have managed this. Procter & Gamble at its Belleville and Brockville plants now has regional and even global responsibil- ities for selected products. Why? Because P&G Canada has a proven track record of excellence and profitability. This is important not only in earning the right to international responsibilities from head office in Cincinnati but also for winning support from its more than 70 fellow subsidiaries. The views of sister subsidiaries are important because of the intense competition among subsidiaries for these international mandates: the winner must be seen as having earned this corporate plum.
Canadian subsidiaries continue to win international and global man- dates. Recently pharma giant Glaxo announced an additional investment in Quebec to produce vaccines. A sub- sidiary of one of the world’s largest pharmaceutical companies, Glaxo Canada exports 80 percent of its prod- ucts. It has the North American man- date for Mepron, to treat pneumonia in AIDS patients, and a global mandate to make Malarone, a malaria drug.
I have conducted interviews with leading Canadian subsidiaries for over a decade on this topic. This research suggests that many Canadian sub- sidiaries can successfully compete for broader responsibilities within the net- work of their parent firm. It is critical for Canada’s economy that they do so. One of the most important findings was that the senior team of the sub- sidiary, especially the Canadian CEO, was central to a subsidiary winning international mandates. We encourage CEOs and their teams to aggressively pursue international responsibilities.
One of the most important cross- currents in globalization has been the rise of regions as a critical level of analysis in globalization. Twenty years ago the nation and the globe were the two levels one had to consider. Today, one must think about cluster, nation, region and globe. A cluster often revolves around one or two cities. For example, in Canada the pharmaceutical industry is almost evenly split between Montreal and Toronto. Likewise aero- space is also Montreal and Toronto. In Calgary oil is boss, though Edmonton and St. John’s also play a role. Other industries like high-tech are more spread around the country, though Toronto, Ottawa and Montreal are the strongest centres, at least in terms of numbers.
Nation is becoming less relevant although, depending on the industry, nation still has a role to play. For exam- ple, think of the recent federal funding of close to $1 billion for five years for Canada’s aerospace industry. Though global gets the most press, it is region which has seen the greatest growth in importance in the last 20 years, admit- tedly from a lower starting point. Rather than just focus on global mandates, sub- sidiary CEOs are wise to recognize this move within their multinationals and add this nuance to their thinking.
This is the first of two forward strate- gies for Canada, winning global and regional mandates for Canadian subsidiaries of foreign multinationals. The second strategy is soundly aimed at the leaders of indigenous Canadian firms, not the subsidiaries of foreign multinationals. We simply need more gutsy business leaders in our coun- try. We do have some: Dominic D’Alessandro of Manulife, the Desmarais family of Power Corporation, Craig Dobbin of Canadian Helicopters, the McCains, the Beaudoins of Bombardier, Guy Laliberté of Cirque du Soleil, SNC Lavalin, the founders of RIM, Jim Balsillie and Mike Lazaridis, Nortel in its day, Paul Tellier at CN, Michael Potter of Cognos, high-tech’s Michael Cowpland and Terry Matthews, Ati’s K.Y. Ho, CGI’s Serge Godin, pharmacy chain founder Jean Coutu, Aldo Bensadoun of Aldo Shoes, Alain Bouchard of Couche-Tarde, Magna’s Frank Stronach, Robert Brown who has turned around CAE, Robert Milton who turned around Air Canada, Robert Dutton of Rona and so on.
Not all have succeeded in taking Canadian firms global; some have not even made it in the US market, or at best have struggled ”” Couche-Tarde most recently and Canadian Tire a few years ago are but prominent exam- ples. The problem is that we have lacked the big-vision leaders in the last decade or two. Most we have listed are longer in the tooth than we need for a vital, ambitious Canada. To build a global leader from scratch takes decades; we need young men and women out there today. Perhaps it is a bit our national character, quieter, less ambitious than our cousins to the south. Well, in a glob- alizing world, perhaps we need to put more of a premium on this type of vaunt- ing ambition and herald it, honour it and play to it. Yes, perhaps it is a bit too noisy by Canadian standards. It might even be physiologically unsound, at least accord- ing to INSEAD professor Manfred Kets De Vries. Nevertheless, some must sacrifice at least part of their work-life balance for great global competitors to originate in Canada and play a starring role on the global business stage.
Leaders, here in Canada, aggressive- ly going for the gold, grasping the net- tle, however you want to put it, with a bit of overarching ambition. As a socie- ty, we need to honour these leaders and accept the occasional misstep as a neces- sary form of learning, rather than view it as failure. We have the resources, an outstanding educational system, appro- priate good government policies, and the smarts. What we need is the ele- ments of vision, daring and ambition.