President and Chief Executive Officer, Export Development Corporation
TRADING UP: FAIR TRADE IN THE NEW GLOBAL ECONOMY
Chairman: Bill Laidlaw
President, The Empire Club of Canada
Head Table Guests
Sharon Rudy, Vice-President, Spencer Stuart and Director, The Empire Club of Canada; The Rev. Stephen Drakeford, Associate Priest, St. Matthews Anglican Church, Islington; Tony van Straubenzee, Managing Director, Russell Reynolds Associates and Past President, The Empire Club of Canada; Uwe Harnack, President and CEO, Canadian German Chamber of Industry and Commerce; Gordon F. Cheesbrough, President and CEO, Altamira Management Ltd.; John C. Koopman, Partner, Heidrick & Struggles and 2nd VicePresident, The Empire Club of Canada; William Blundell, Past Director, Export Development Corporation and Former Chair, Manulife Financial; and Allan Millman, President and CEO, Fantom Technologies.
Introduction by Bill Laidlaw
We are fortunate to have with us today Ian Gillespie, President and CEO of the Export Development Corporation or EDC. For the last 57 years the Export Development Corporation, a crown corporation,
has helped Canadian businesses compete in more than 200 countries by providing trade finance and risk management services. Ian has been with EDC since 1978. He has held such positions as Senior Vice-President, Risk Management and Corporate Performance, and Senior Vice-President, Insurance Services so he brings with him a wealth of knowledge and insight regarding the challenges Canadians face in world markets. If knowledge is power, we should leave much more enlightened today.
It has never been more evident than today that businesses are operating in a borderless environment, particularly through the use of technology. Positioning and empowering your business means finding the right balance and understanding the forces of globalisation and how they impact your business.
At the recent Summit of the Americas meeting in Quebec City, trade and democratic issues took centre stage, so our topic then is a very timely one.
Ian will address three key issues with us today:
The changing nature of trade and trade financing and the role EDC plays in creating Canadian financial capacity to help our businesses compete in the global markets;
How EDC is helping to maximise Canadian trade competitiveness, while meeting its obligations vis-a-vis corporate social responsibility;
The importance of a level playing field for Canada in trade finance and in corporate accountability.
With businesses extending their reach and their dreams, Ian will bring us up-to-speed so that we are better able to manage those inroads.
Let's welcome Ian now.
The majority of Canadians are incapable of starting a conversation without referring to the weather. My contribution in that "vane" is to express the hope that more Canadian companies will view the electricity building in the air as an exciting indicator of the numerous opportunities emerging for global business, and not of the static kind. Seizing the multitude of opportunities whether they be export- or investment-related, however, will take a stronger commitment to broadening corporate
horizons and risk-taking, as well as strong leadership and courage.
First an apology to those who thought you would hear more about the post-Summit challenges before us. I realise that was advertised as my topic for today. At the risk of driving some of the people I work with to distraction, I have re-worked my remarks to provide more of a "from where I sit" perspective on what it takes to compete and succeed internationally. Regarding issues germane to the recent Summit of the Americas, let me just say that the verdict is in. Today, more Canadians recognise the merits of trade and its potential for significant wealth creation.
The picture I want to paint is not about the importance of trade to Canada. You know as well as I do that exports represent 43 per cent of GDP--the highest of the major industrialised countries. Rather, I want to discuss what we, that is business, government and academia, need to do collectively to build more competitive teams for the recently inaugurated business Olympics among countries and companies as they compete furiously for mind share as well as market share.
Competing as individual businesses or as sovereign entities, the global economy has become, whether we like it or not, a giant league table-type contest played out 24 hours a day, seven days a week. A perpetual contest without seemingly a finish line, where you have to be able to showcase the "right stuff" whether it is technology, products and services, risk capacity or, increasingly today, speed of execution or delivery. The name of the game is to grow by competing for attention in a market where everything, thanks in part to the Internet, is on view and offer all the time. No wonder building competitive advantage through comparative advantage is so important. Some of the more successful companies also realise that weighing in with strong partners--in the public and private sector alike--adds significantly to their bench
strength and chances of deal capture because "provenance" counts in the final selection process. Viewed in this light, the concept of a more fully developed Team Canada partnership to add global muscle may well have considerable latent currency.
From my vantage point as head of EDC, I have some appreciation of the challenges faced by Canadian industry. We are in the risk business providing trade finance-related services, often in partnership with other financial institutions, to help Canadian companies succeed in the global marketplace. Last year we supported some $45 billion in exports and foreign direct investment on behalf of 5,700 customers. That amounts to almost 4 per cent of GDP-10 per cent of total Canadian export sales. Our customer base covers the entire spectrum of Canadian industry. Customers range in size from emerging exporters with export sales of less than $1 million to the largest and best known marquee names. Half of our customer base is in this emerging category. We are actively taking risk in some 160 countries through the provision of various types of credit, performance and political risk insurance and lending and project financing solutions. Most importantly, we have great people with the requisite knowledge and passion for the mandate, which all Canadian companies can count on to help them grow their top-line revenue as well as protect their bottom line. Speaking of which, we have been consistently profitable. There is no opportunity cost on the $1 billion of share capital invested in EDC, and we are well provisioned against the unexpected having already taken $3.3 billion out of income for this purpose. In this sense I believe EDC does combine the best of public policy with the best of private-sector methods.
Globalisation is creating angst for some because it is akin to a disruptive technology while others can "visionise" it as a form of sustaining technology. Your perspective may depend on the adaptability of your business
model and the leadership culture which exists within. There is no question globalisation is making profound changes but rather than debating the merits, suffice it to say that indisputably, it is creating opportunities the world over for Canadian companies. The trouble is, at the risk of stating the obvious, they are not uniquely Canadian opportunities and, moreover, our own back yard may be someone else's clover. Assessing competitiveness in solely domestic terms may be hazardous to your bottom line. Today companies need a broader geographic view, if not a full global perspective, of competitive positioning including productivity, technology, R&D, speed, execution, knowledge, market share, alliances, and financial muscle to avoid being captured as a pawn or strategic asset by others.
For these reasons, companies need to develop a growth strategy which considers not only export activity but also foreign direct investment (FDI). They also need to more frequently re-test their underlying competitive advantage assumptions because of the ever-changing marketplace. Canadian companies--even our most prominent names--are small to medium-size on the world stage. They lack the financial muscle and breadth of resources of the industry leaders in a game where often scale counts. We need to educate the public more about these new realities. We need to champion greater global risk-taking and applaud successful efforts. In short, we need to build more world-class organisations in Canada. We need to make big companies bigger, and help smaller companies play leapfrog--giant leap frog, wherever possible. And we can do it by going after a bigger piece of the export and investment pie.
Right now, a mere 100 exporters account for over 50 per cent of Canada's total exports. In FDI terms, Canada's share has been slipping in recent years. If foreign investment is a primary driver and leads export activity, Canadians are not keeping pace. In a world where large
transnational companies are the driving force in terms of investment, R&D and technology, we need to build and attract more of them.
When we think of Canadian world-class companies, names like Nortel and Bombardier spring to mind. I define world-class as those that dominate in their respective sectors, employ large numbers of brains, and act as incubators to the creation of other new innovative companies. Nortel has achieved this status partially through its substantial R&D which represents more than 25 per cent of total private-sector R&D spending in Canada. These kinds of companies also contribute significantly to Canadian prosperity because a majority of their suppliers are small and medium-size enterprises.
Both Nortel and Bombardier are major customers of ours because they have discovered that competing on global markets requires not only good products and services but also good financial partners who have risk appetite, market knowledge and deal-structuring capability. You only have to compare these companies in market capitalisation terms to the most recognisable global names in their industries to realise how tough the competition can play. Industry leaders are multiples bigger and so too are their financial partners. Scale on the world stage is important.
I don't think we are doing enough collectively to seize the global opportunities and to position ourselves for the future even though macro-economic conditions are looking increasingly favourable. The debt, interest rates and taxes are all coming down, inflation and employment levels are looking good and the dollar is offering foreign buyers of Canadian goods and services deep-discount shopping. There is no question export performance has been terrific mainly because of that strong engine of growth to the south. Long may it last but companies need to push even further afield and take up additional global supply chain, export or investment ideas. Maintaining
competitiveness by "inputting" comparative advantage and growing top-line revenue is a sine qua non towards success. What would Canada look like today if the fur traders and other pioneers some 200 years ago simply exploited the status quo within 200 kms of Montreal? With the technology of today, worldwide opportunities exist at our fingertips or face-to-face in the same amount of travel time.
Given the entrepreneurial spirit which is growing and evident through the number of new start-ups, a good news story can be told, but the focus seems for the most part to be somewhat parochially concentrated on the U.S. market. The time is right to also look to establish a presence in Latin America, Europe and the Asia Pacific region. Given the dynamic business sector, which is rapidly developing in Mexico, for example, as I again witnessed a few weeks ago, we can't assume the American market will be open to others only at our invitation. Interestingly enough, the world's third-largest cement company and third-largest copper producer are headquartered in Mexico. Very significant achievements for a country that hasn't had all the economic advantages enjoyed by Canadians ranging from health care and social assistance to well-developed credit and capital markets. Capitalising on the early advantage of free trade in BComs, MBAs and PhDs offered by the leading business schools of the world may have been part of their successful strategy. Ironically, it may also have been because of the limited depth of the capital markets in their own country that many of the leading companies were forced to borrow offshore in U.S. dollars and needed as a consequence a U.S.-dollar source of revenue as a natural currency hedge. Going global may have been less a choice but a matter of survival. Such basic needs often build strong competitive instincts.
Bilateral trade between Canada and Mexico amounts to some $12 billion currently weighted 2:1 in Mexico's favour. As Canada's fourth-largest trading partner, Mexico
represents a rapidly growing opportunity for Canada too. Mexico, for example, needs tens of billions of dollars invested in the energy sector alone over the next five to 10 years to keep up with demand and avoid a Californialike outcome. We need to collectively put ourselves in the driver's seat in going after this business. These kinds of opportunities are emerging across industries in Mexico but also in many other countries around the world. We need to react to these situations with greater urgency and with more concentrated public/private collaborative effort. Opportunity foregone by Canadians becomes someone else's revenue and they may be building to scale to create the very comparative advantage we require to play the global game successfully. In the end, you get whatever results you are willing to tolerate.
Business, government and academia need to co-ordinate our leadership efforts to position Canada for global success now and in the future. This includes identifying global opportunities, and then investing in the technology and people required to capitalise on these.
For example, as other countries develop their worldclass global competitors, we should look for chances to feed off their global-sourcing requirements. And I don't mean just in terms of the raw or intermediate inputs to their production processes. They, by definition, need methods of communicating between operations, which creates demand for telecommunications, computer technology, helicopters or planes. They also need consulting and engineering services, environmental technologies, furniture and other physical infrastructure. The list is endless. Now is the time to build interconnected networks of world-class companies to service other leading global players. We have all the ingredients. We just need to experiment with the recipe. Here is a great chance, for example, to build some truly scalable global leaders in environmental technologies.
Investment in education is another important part of the equation--the education of young people to develop their awareness of and career interests in the international marketplace; the continuous learning of those on the job; and the education of the wider audience to the emerging micro- and macro-economic key success factors. I purposefully use the word "emerging" because resonating in my mind is the story about a class of business students that asked their professor why the exam questions this year were exactly the same as the year before. His reply: "Because the answers this year are different."
EDC has made education and youth employment our cause of choice, creating what we call our EYE strategy. This strategy includes 18 national scholarships and work terms; the hiring of 50 summer students; an investment in the curriculum of the Forum for International Trade Training, Canada's centre for international trade training and certification; sponsorship of the Centre for International Business Studies at Dalhousie University; sponsorship of Global Vision-Junior Team Canada which introduces secondary and post secondary students to foreign cultures and the international business environment; and investment in the development of case studies for business school purposes.
We also invest heavily in our employees--"EDC University" as I like to call it--currently the largest pool of trade finance talent under one roof in this country.
We are taking a leadership position in key markets as well, having recently expanded the number of EDC representatives stationed outside Canada and co-located with embassy staff. We are looking to add to our current presence in Mexico, Brazil and China. There is no better way than persistent face-to-face business development efforts on the ground in foreign markets. Ensuring adequate trade commissioner service resources, and having any provincial business development representation fully co-ordinated is important to our ability to get the Canada story clearly sold. As the expression goes: "You never have a second chance to make a first impression!"
Knowledge and credit (or more broadly risk appetite) are also important differentiators today to be able to grow our international profile. It is, therefore, disappointing to see that the number of foreign bank branches of Canadian banks and the number of foreign news bureaus of our media continue to shrink. While it is easy to dismiss this argument by suggesting these items are now freely available global commodities, I can't help but think in the contest for mind share and deal capture we are adding to the challenges. Indeed, at the very time when we need to be more globally cognisant, we may be becoming unwittingly more North American centric. But I digress.
So what are the trophies to be had in this global relay race already under way if more Canadian companies can seize more of the available opportunities? There are several obvious ones. Number one would be sustainable economic performance. That is not to suggest it would all be clear sailing because to some extent crises are endemic. However, stronger diversification is likely to lower overall volatility and shorten the recovery time from periodic bouts of anaemic growth. It is, as we know, more difficult to build strength from weakness. As well, building global influence in political and economic terms is more confidently enhanced under these conditions.
A broader base of economic relationships will not only facilitate the export of Canadian values (social, rule of law, anti-corruption, environmental) but it will also give us the means to safeguard them at home. The more revenue we generate, the more money there will be for investment, job creation, entrepreneurial activity, public infrastructure and social support programmes while allowing for lower taxes, lower interest rates and healthy surpluses.
It is also our means to contribute to building successful economies elsewhere which is really the best anti-poverty solution yet devised.
Now is the time for Canadian companies to move up the league tables by seizing the abundant global opportunities. Our prosperity depends on it. EDC will be there as a catalyst and as one member of a strong supporting cast. Thank you for your attention.
The appreciation of the meeting was expressed by John C. Koopman, Partner, Heidrick & Struggles and 2nd Vice-President, The Empire Club of Canada.