Business

Mission Critical

Mary Janigan February 5 2001
Business

Mission Critical

Mary Janigan February 5 2001

Mission Critical

Business

Mary Janigan

His firm has no flashy consulting contracts to sign during next week’s high-powered trade mission to China, but David Stregger would not dream of missing it. The president of Winnipeg-based Teshmont Consultants Inc. figures the trip is the perfect chance to extol his company’s expertise in high-voltage electrical transmission. And China is just starting to connect its sprawling network of regional power grids. Stregger’s company has had ample experience in China since 1983. But centralized authorities still approve power sector decisions in China. And Stregger believes it will be far easier to meet those authorities when he is tagging along with Prime Minister Jean Chrétien. “It keeps up our visibility,” he

Team Canada sets off for China amid doubts about Ottawa’s trade road shows

says. “If we weren’t on this, they would wonder if we were still interested in pursuing work. And we definitely are.”

In the cutthroat world of international trade, Team Canada has become Ottawa’s key weapon to pry open doors for timid Canadian exporters. In seven years, Chrétien, provincial premiers and hundreds of business executives have made five trips halfway around the world, flogging Canadian expertise everywhere from Southeast Asia to South America. Now the Prime Minister, nine of the 10 provincial premiers, the three territorial leaders and more than 500 business executives are heading to Beijing, Shanghai and Hong Kong from Feb. 9 to 18.

Yet for all the enthusiasm, some critics are asking uneasy questions about Team Canada’s exalted place in the nation’s trade strategy.

They worry that its high-profile missions to farflung nations are in danger of becoming a substitute for a real strategic trade plan. And they seriously question the effectiveness of these trips when in only one case—Chinas—has the portion of Canadian exports sold to a visited country increased significandy after the mission. Nor has investment in Canada from these nations improved.

China was Team Canadas first destination in November, 1994. And, to be sure, Canadas thirdlargest trading partner remains a natural target for a sales team. Its economy is booming. Canada also wants to reinforce its bilateral ties before China joins the 140-nation World Trade Organization, probably later this year. Chretien and the premiers will suggest that Canada would be a wonderfid place to set up manufacturing operations to take advantage of the freer U.S. market. Canadian firms will extol the goods and services they can provide to a nation that is updating its antiquated infrastructure to attract trade and investment. Some will even offer legal expertise in dealing with the WTO treaty. “There are very good predictions that within 20 years, China will be the No. 2 economy in the world,” says Earl Drake, former Canadian ambassador to China and president of the Canada-China Business Council. “We need to be part of that. We need to get in on the ground floor.”

That sense of urgency has kept the mission alive through a season of political turmoil. It was originally scheduled for last November to mark the 30th anniversary of Canada’s decision in 1970 to open diplomatic relations with China. That was a bold move at a time when the United States still insisted that Taiwan was the legitimate Chinese government. But it was postponed when Chrétien called the Nov.

27 federal election. Since then, trade officials have scrambled to revive it. The only political casualty is Alberta Premier Ralph Klein, who had to cancel because he will likely go to the polls this spring. But officials have managed to reschedule meetings for Canadian executives with potential clients and partners. “It really does open doors,” International Trade Minister Pierre Pettigrew told Macleans. “It’s a formula that calls a lot of attention to our country—and gives a lot of credibility to our businesses.”

Still, critics worry that Team Canada has become, in trade terms, the defining feature of Chrétiens time in office. Former B.C. premier Michael Harcourt first raised the idea of a federal-provincial sales team during a First Ministers’ meeting in 1993,

and, as a former trade minister, the Prime Minister embraced it. “This is his baby,” says an insider. “And this is our trade policy. That is why he is so obsessed with it.”

Yet according to Statistics Canada, the missions have had virtually no impact on Canadas exports to targeted nations or foreign direct investment from them. From 1994 to the first 11 months of last year—the most recent period for which figures are available— the value of Canada’s exports to the United States increased from 81 per cent to 87 per cent of all exports—although it was not a Team Canada target. Among the team’s 13 destinations, the only, and slight, success story is China: during that period, the value of Canada’s exports has inched up from half a percentage point of total exports to nine-tenths of a percentage point.

In examining the other 12 nations, Macleans used the Statistics Canada data to compare exports in the year of the mission with the first 11 months of last year. Exports to 10 nations declined as a proportion of all exports. Exports to Chile, which Team Canada targeted in January, 1998, remained the same. Exports to Mexico edged up one one-hundredth of a percentage point. In most cases, the dollar value of the exports also dropped.

The picture for foreign direct investment in

Despite all the hoopla, Team Canada missions have made little visible impact on trade between Canada and most target countries. This chart compares the percentage of Canada’s total exports bought by those countries in the mission year and in the first 11 months of 2000.

TRADING DOWN

COUNTRY

MISSION

DATE

! % OF TOTAL % OF TOTAL

Í CANADIAN EXPORTS, EXPORTS THAT JAN.-NOV., 2000

YEAR

TREND

INDONESIA

MALAYSIA

PAKISTAN SOUTH KOREA

PHILIPPINES

MEXICO

BRAZIL

ARGENTINA

Nov., 1994 Jan., 1996 Jan., 1996 Jan., 1996 Jan., 1996 Jan., 1997 Jan., 1997 Jan., 1997 Jan., 1998 Jan., 1998 Jan., 1998 Jan., 1998 Sept., 1999

0.52%

0.35

0.2

0.13

0.03

1.02

0.16

0.14

0.46

0.43

0.11

0.11

2.36

0.91%

0.18

0.1

0.12

0.02

0.55

0.09

0.09

0.47

0.25

0.11

0.06

2.19

443:4444444444;

Canada was equally disappointing. Between 1994 and 1999, the value of U.S. investment went from 66 per cent to 72 per cent of the total. Chinese investment dropped from 0.15 per cent to .08 per cent. In the few other cases where data were available,

FDI declined—with the sole exception of Brazil, where FDI remained the same.

Few trade missions ever yield an immediate sales bonanza. But the Prime Minister’s Office has established a dubious method of judging each mission’s success by tallying the value of the deals— and trumpeting the results. Such inflated expectations can never be fulfilled, if only because the number includes everything from contracts signed before Chrétiens arrival to letters of intent that never materialize. As well, many deals fell apart when Asian and Latin American economies lost strength during the dramatic currency crises of the late 1990s. On the 1997 mission to South Korea, Charles Kim, president of Vancouver-based Trans-Pac Fibre Inc., signed a $14-million joint-venture agreement to erect a lumberyard with Dae Sung Lumber Ltd. of Seoul. That deal evaporated in 1998 when his partner went into receivership. “When you look at the direct benefits, I don’t think there are many,” Kim says.

“But if you are travelling with the head of the country, your firm has more credibility—and you get more exposure.”

But a government leader cannot be everywhere. Critics contend that Canada’s efforts at trade promotion should be more discriminately focused. Why have previous missions devoted so much effort to nations such as the Philippines, where the value of Canada’s exports constitute less than one-tenth of a percentage point of total exports? Why not concentrate on such nations as the members of the Mercosur customs union—Brazil, Argentina, Uruguay and Paraguay—where exports remain slight but the growth potential is huge? Why not work to extend the North American Free Trade Agreement to these nations? “The reality of our trade is North America,” argues Alan Alexandroff, research director at Toronto’s Munk Centre for International Studies. “That is where Canadian companies are investing. That is where we are doing the bulk of our trade. With limited resources, we are going to have to decide where to put our jelly beans.” Others contend that the department’s resources and Chrétiens clout could be better used to clear away legal impediments to trade. “Government would do far better for us by sitting down with the politicians in those countries,” argues

‘We will have to decide where to put our jelly beans’

Brian Lee Crowley, president of the Atlantic Institute for Market Studies. “They should be hammering down the trade barriers that are actually the obstacle to our people doing business.”

Still, most experts, including the Munk Centre’s Alexandroff, concede the China mission is useful because close ties still exist between that country’s government and business sector. And opportunities abound. SNC-Lavalin International Inc. of Montreal will likely sign a contract to do a feasibility study on the extension of the Beijing mass transit system. Edmonton-based Lockerbie Stanley Inc. wants to boost its chances of getting two contracts to design and build wastewater treatment plants. “We meet people that we might never meet on our own,” says vice-president Robert Pitour.

Given such benefits, most experts do not want to disband Team Canada: they want to make it part of a more extensive trade strategy. “Team Canada missions are really good for improving our relations with countries that don’t yet come under a trade agreement, such as China, or where we have structural problems, such as Brazil,” says Daniel Schwanen, senior economist at the Institute for Research on Public Policy.

Trade officials are also starting to use Team Canada as the centrepiece of a more sustained promotional effort. After the September, 1999, mission to Japan, they organized seminars across Canada to highlight trade opportunities, then offered personalized help to interested firms. They also staged symposiums in Tokyo and Osaka last May featuring 26 Canadian information technology firms, attracting more than 600 Japanese participants.

Such individual care is paying off. Katlyn International Inc. of Waterloo, Ont., and Murata Machinery Ltd. of Kyoto had already signed a deal to build an Air Canada cargo handling system in Toronto when Katlyn marketing director Roland Mechler joined the 1999 Team Canada mission. On the trip, officials introduced Mechler to a Canadian living in Japan who, in turn, put him in touch with a firm that also needed a cargo facility. “We don’t expect government to hold our hands,” Mechler says, “but they have supported us.”

In the end, Team Canada may be a useful attention-getting device for an often overlooked nation. But Tom Axworthy, former principal secretary to prime minister Pierre Trudeau, warns that the emphasis on trade could narrow the scope of Canada’s relations with other nations—to its ultimate detriment. “Team Canada should involve culture and education and journalism as well as business,” he says. “Keep the concept: it’s a terrific one. But broaden it.” That is, Team Canada may be more effective if it can turn customers into friends. 03