BUSINESS

This burger lived a happy life... really

COLIN CAMPBELL April 16 2007
BUSINESS

This burger lived a happy life... really

COLIN CAMPBELL April 16 2007

LAND OF THE TIMID...

Why Canada has never made a name for itself in international trade

BUSINESS

Aside from the U.S., Canada does relatively little business with the rest of the world. Economists are increasingly concerned that we are being marginalized, and turned into a branch plant economy. Now, in her new book Why Mexicans Don’t Drink Molson, Maclean’s contributor Andrea Mandel-Campbell explains why Canada has been so incapable of translating vast resources into a meaningful presence in world commerce.

BY ANDREA MANDEL-CAMPBELL • An

old Chinese parable explains Canada’s place in the world, says David Fung, a Hong Kongborn self-made millionaire who now makes his home in Vancouver. It goes like this: a fox meets a tiger in the forest. The fox says to the tiger, “Don’t eat me because I am really powerful. If you don’t believe me, follow me around the forest and you’ll find everyone bowing to me.” Sure enough, everywhere the tiger and the fox went, all the animals bowed. “Well, of course, everybody was really bowing to the tiger,” says Fung. “In Canada, we take the U.S. to be our tiger.”

The problem is, as global supply chains weave their way around the planet, companies consolidate and free-trade agreements are thrown out like so many nets into the sea, the tiger may find better things to do than follow a fox around the forest. Shorn of its protector, the fox falls prey to the law of the jungle. And Canada, like the fox, has very little to shield it from the ferocity of global markets. In fact, on closer inspection, this fox, with its puffy tail and pointy ears, begins to resemble an overgrown squirrel.

The first telltale sign of Canada’s vulnerability is in its companies. In an era where size matters, the country has precious few multinationals. Despite laying claim to the second-largest proven oil reserves in the world, Canada has no “super-majors” like Exxon Mobil or British Petroleum. Few countries are carpeted with such vast tracts of trees, yet there is not a single tier-one forestry company to rival those of the Scandinavians or the Americans. Aluminum maker Alcan is perhaps the most global Canadian company, but with US$20 billion in sales it is considered small by international standards (the newly merged Arcelor Mittal steel giant has sales of US$77.5 billion) and is an increasingly likely takeover target.

As for Canada’s blue-chip banks, they are irrelevant internationally, dwarfed by multinationals like Citigroup and Holland’s ING Group. According to the Fortune 500 list of the world’s biggest companies in 2004, Canada’s leading entry was George Weston Ltd. at 240. But while Weston has grown fat plying Canadians with baked goods and President’s Choice brand foods at its ubiquitous Loblaws and Superstore chains, French grocer Carrefour is in an entirely different weight class, with a global empire that includes more than 200 stores in China alone.

Canada’s lack of global girth exposes an even softer underbelly. While Sweden has Ikea, Finland has Nokia and Italy has the fashion triumvirate of Armani, Gucci and Prada, Canada does not have, nor has it ever had, a single global brand. Even landlocked and impossibly mountainous Switzerland boasts a swath of high-altitude names, from banks and Rolex watches to Nestlé chocolate, Nescafé instant coffee and pharmaceutical giants Novartis and Roche.

In contrast, Canada is almost anti-brand. In a country without a lot of large companies, an inordinate number of them are generic manufacturers or outsourced contractors hired to make other companies’ products. The no-name club includes Cott, which is now the largest private-label soft drink manufacturer in the world; Celestica, a contract electronics manufacturer; Apotex, a generic drug manufacturer; Patheon, a leading contract drug maker; and Peerless Clothing, which manufactures men’s suits under licence for upscale brands like Calvin Klein and Ralph Lauren. Even Montreal-based Gildan Activewear, one of the largest T-shirt makers in the world, is no Fruit of the Loom.

Some say it’s because we’re just too darn nice and middle-of-the-road to put our imprint on anything and duke it out for world domination. Finns, despite their socialist leanings, are definitely not soft and cuddly, say those who have dealt with them. The Australians, descended from convicts exiled to a distant island, are ballsy adventurers who travel the world over. And while Bern may rival Ottawa as the world’s most boring capital city, the Swiss are “calculating, regimented and disciplined. They know what they want and are fantastic negotiators,” says Jeff Swystun, the Toronto-based global director for the branding company Interbrand.

PRACTICALLY ALL OF CANADA’S MAJOR BUSINESS SUCCESSES ARE THE WORK OF FOREIGN MANAGERS

“It’s a problem of our marketing aggressiveness. When has Canada ever conquered another country? We are a country that’s never had a revolution, never had a civil war,” says Swystun. “Unfortunately marketing is all about scrapping it out—for market share, for share of mind and share of wallet. That means being aggressive day in and day out. And that just doesn’t appear to be in our character. It would mean taking a stand, and that’s something we are loath to do.”

So instead of being scrappers, we are skimmers. Whether it’s the big banks that sit at home counting their billions, logging companies content to hew two-by-fours instead of manufacture tissue paper, or manufacturers churning out generic products rather than innovating, Canadian companies scoop the cream off the top rather than milk their products and services for all they are worth. “The Americans phone us and say ‘We need wood’ and we sell it to them, and they sell it back to us as a cabinet,” says Drury Mason, Alberta’s assistant deputy minister of economic development. “And we’re happy to do it because we made money on the wood.”

That kind of inward-looking comfortable complacency has taken a toll on the country’s entrepreneurial drive. The lag is reflected in a reluctance to invest in new technology, a reliance on cheap labour and a yawning productivity gap between us and the U.S. Canada’s investment per worker in machinery and equipment is about 60 per cent of U.S. levels, our companies spend less than half as much on research and development as the Americans do, and we are 20 years behind

our neighbours in our stock of information technology. Not surprisingly, Canada continues to slip in the World Economic Forum’s annual

rankings of the world’s most competitive countries—down from sixth place in 1998 to 15th in 2006, largely due to a weak track record on innovation. In contrast, Finland, Sweden and Denmark have topped the charts year after year, thanks to a private sector that, according to the forum, “shows a high proclivity for adopting new technology and nurturing a culture of innovation.”

That’s not to say that Canadians never come up with innovative technologies or groundbreaking inventions. They do. In fact, they do it quite often. The problem is that they seem to have a hard time making the leap from the laboratory to the marketplace. When a Canadian product does make it to the store shelves, it’s usually because an American company made it happen. “What Americans are good at is taking a commercial venture and getting people excited about it,” says Nizar Somji, owner of the Edmonton-based technology firm Matrikon. Adds Interbrand’s Jeff Swystun: “We don’t have a marketing mindset in this country at all. It’s truly a void in the business world.”

The story of IMAX Corp., the iconic bigscreen movie company, is the Canadian conundrum writ large. In the late 1960s, a group of Canadians developed a revolutionary technology for large-format film. The technique became a staple at science centres and museums, but eventually it stumbled on drab content and limited growth. Two Americans picked up the floundering company in 1994 and gave it a new lease on life. No longer merely a vehicle for documentary and educational films, IMAX now features Hollywood blockbusters using a technology it developed to convert conventional films to its format. The new owners, a pair of New York investment bankers, have signed licensing agreements with theatre operators around the world. There are now 366 big screens running in 36 countries.

John Mendlein, an American biophysicist and lawyer who spent 4V2 years working in the Toronto biopharmaceutical sector, traces Canada’s limp salesmanship back to another duo: Fredrick Banting and Charles Best. In 1921, the two Canadian doctors discovered insulin, the life-saving secretion used to treat diabetes. The Nobel Prize-winning find is one of the greatest medical discoveries of the 20th century, yet the two never attempted to cash in on their work, considering it “culturally unacceptable,” says Mendlein, to commercialize science.

A group of Danish scientists, however, were not bothered by similar concerns. On hearing of the Canadian breakthrough they immediately got to work producing insulin, and in 1923—just two years after the initial discovery—they launched a company and began treating patients. That company, Novo Nordisk, is today a world leader in diabetes treatment, employing 20,000 people in 78 countries.

Canada, in comparison, while having made world-leading advances in diabetes and stemcell research, is nowhere on the pharmaceutical industry map, according to Mendlein. It has been outmanoeuvred by everyone from Sweden to India. “If you look at where you are on the level of research and biological science, you are probably in the G3,” he says. “But Canada doesn’t even make the G8 of pharmaceutical countries. It’s tragic.”

“Canada has some software and electronics companies, a little aircraft, but no consumer goods or cars, and it’s not really happening for computers or pharmaceuticals,” adds Mendlein. “You could be the Norway

in North America and rely on commodities, but you are not going to be Sweden, which is home to the top-selling drug in the world and probably the car you drive. The question is, where does Canada fit in?”

It’s a good question. To answer it, I asked four related questions about the largest supposedly “Canadian” companies to gauge the country’s entrepreneurial drive and managerial capacity—the basic requirements for creating globally competitive companies:

1. How many companies were founded by immigrants?

2. How many had American or other foreign management?

3. How many were actually subsidiaries or spinoffs of foreign companies?

4. How many, despite a listing on a Canadian stock exchange, had a CEO and/ or a head office located south of the border?

The answers lead to an astonishing conclusion: an economy on cruise control, with foreigners and foreignborn Canadians at the wheel, while native-born Canadians snooze in the back seat.

To begin with, almost every significant high-tech firm to come out of the Ottawa

area, known in better times as Silicon Valley North, was started by a clutch of British entrepreneurs. The list includes Cognos, Corel, Zarlink Semiconductor, Mitel Networks, Tundra Semiconductor and Newbridge Networks. The exception—JDS Uniphase—was started by a Slovak, Josef Strauss.

Hungarian-born Peter Munk founded Barrick Gold, while compatriot Frank Hasenfratz heads up Finamar, Canada’s second-largest auto parts company. Only Magna, the parts giant founded by Austrian-born Frank Stronach, is bigger. Two Germans, Klaus Woerner (now deceased) of ATS Automation Tooling Systems, and Husky’s Robert Schad, round out Canada’s contribution to the tool and die industry. Says Schad of his fellow European immigrants: “We had a good technical education and then flourished in this country because there was no competition.”

‘CANADIANS ABDICATE BRAND BUILDING. IT COMES BACK TO OUR GREAT INFERIORITY COMPLEX.5

The field was equally unencumbered for brash and innovative entrepreneurs like Isidore Philosophe, who emigrated from Beirut, turning a basement business into Cinram, the world’s largest manufacturer of CDs and DVDs; Aldo Bensadoun, the Moroccanborn owner of the Aldo shoe chain; Karl Kaiser, the Austrian co-founder of award-winning Inniskillin wines; Peter Nygärd, the high-flying Finn who launched a textile empire from Winnipeg; and Robert Friedland, the American hippie turned promoter behind the Ivanhoe energy and mining ventures. Moses Znaimer, the architect of the Torontobased Citytv media group, was born in Tajikistan, the son of Holocaust survivors. Saul Feldberg also survived the war in Poland and went on to found the Global Group of Companies, one of the world’s largest office-furniture manufacturers. German-born Stephen Jarislowsky, the flinty-edged octogenarian heading up the multi-billion-dollar investment boutique, Jarislowsky Fraser & Co.,

escaped from France just as the Nazis invaded in 1941. Even Galen Weston, the grocery scion, was born in Britain, whereas Mike Lazaridis, co-founder of the country’s high-tech darling, Research in Motion, was born in Turkey. In perhaps the most telling example of all, Canada’s most iconic brand, Roots, was started by two Americans from Detroit.

In the seemingly rare instances in which companies spring from Canadian-born loins, they are rarely managed by Canadians. Scratch beneath the surface of many a Canadian company and you will likely find an American. The elite fraternity oversees such national icons as Air Canada, CN Rail, and Saskatchewan Wheat Pool. Other alumni include oil company Suncor Energy, electronics manufacturer Celestica, forestry firms Abitibi-Consolidated, Tembec and West Fraser Timber, Magna International and Nortel. Our southern cousins also oversee the mining interests of Cameco, Potash Corporation of Saskatchewan, and INCO, until it was acquired by the Brazilians. British-born executives run McCain Foods and Talisman Energy.

Some companies are even double-dippers. CN, Cott, Lions Gate Entertainment, Nova Chemicals, Brookfield Properties (which built the iconic Montreal Forum) and Thomson Corp. are not only American-run, but their CEOs all live in the U.S. ATI Technologies, one of the world’s largest 3D-graphicschip designers, has the distinction of being a triple-dipper. Founded by Kwok Yuen Ho,

the son of a wealthy Chinese family dispossessed by the Communists, ATI’s top management is American, including CEO David Orton, who commutes

to work from California.

To foreigners this is striking. “Canadians don’t have confidence in their own abilities. They often bring in Americans to run their companies,” says Boris Rousseff, a European trade consultant to Canadian firms. “It’s an issue of corporate culture. Canadians try to pretend they are not who they are.” And therein lies the root of the dilemma: because their economy is essentially run by foreigners, they necessarily downplay or underestimate their own abilities, and by extension their own Canadian brand. Why is it, asks Andrew Stodart, vice-president of marketing and business development for Diamond Estates Wines and Spirits, that uniquely Canadian brands like Coffee Crisp candy bars and Molson Canadian beer were never marketed around the world? “Canadians abdicate brand building,” he says. “It comes back to the great Canadian inferiority complex.” Canada seems to have turned the normal evolution from low-cost manufacturer to value-added brander on its head. While the no-name, behind-the-scenes nuance may be part of the Canadian character, says Jeff Swystun, “it’s not going to allow us to win on the global business playing field.” Instead, it will brand us as “the economy that stands for nothing,” a squirrel in a menagerie of tigers, dragons and elephants. M

The abridged portion of “The Anti-Branders” comes from the book Why Mexicans Don’t Drink Molson. © 2007, by Andrea Mandel-Campbell. Published by Douglas & McIntyre Ltd. Reprinted with permission of the publisher.