The Canadian Global Corporation

SIR ARTHUR CHETWYND:

Distinguished head table guests, ladies and gentlemen: Our speaker today is William K. Mounfield, a Toronto boy from the Parkdale district who has made good in one of Canada's large international corporations, Massey-Ferguson Limited. His present position is president of Massey-Ferguson Industries Limited, the subsidiary which is responsible for the Canadian operation and which employs over six thousand people in Canada.

As a personal aside, I may say that Massey-Harris (the company's earlier name) occupies a unique place in the Canadian motion picture industry of which I have been a part for the past thirty years, as Massey-Harris (as it was then) sponsored the first industrial or business film ever made in Canada, in 1898.

Much is being said these days about the multinational corporation. In Canada the foreign-controlled multinational corporation is being frowned upon by many people, and sometimes abused, at least verbally. Canadian governments, which purport to reflect the wishes of the people at large, have introduced legislation designed to make it more difficult for foreign-controlled companies (most of which could be described as multinational) to expand their control--at least in ways which do not contribute to the Canadian good.

While it is always defensible (in an imperfect world) to protect the Canadian position, perhaps we should not lose sight of what an American named James Garfield once said, and it is this: "Commerce links all mankind in one common brotherhood of mutual dependence and interests."

Our speaker attended Queen Victoria Public School in Parkdale, went on to the University of Toronto Schools for his secondary education, and subsequently gained Bachelor of Commerce and Master of Business Administration degrees at the University of Toronto. He joined MasseyFerguson in 1948, serving for four years in Canada, following which he was transferred to Europe where he held administrative and sales appointments in Massey-Ferguson's French, British and Italian operations.

As another aside, Mr. Mounfield, although a very senior officer in a traditionally anglophone company, is completely fluent in French and a very able communicator in Italian. I believe that this is an important footnote on the character and ability of Bill Mounfield who typifies the best of what is sometimes called a quiet Canadian, preferring to be known by the results of good works rather than by blowing his own horn.

Returning to Toronto in 1959 he became assistant secretary of Massey-Ferguson Limited and secretary of the executive committee of the board of directors. In January 1972 he was made secretary of Massey-Ferguson Limited. He came to his present position in January of 1973 as president of Massey-Ferguson Industries Limited, the company which controls all of the Canadian operation.

I don't have to remind the people in this room that Canada lives by trade, fully one-third of our gross national product going into exports. Over the years Massey-Ferguson has made a considerable contribution to the export side of our international ledger and provided some of the black figures in our balance of payments position. Sometimes we forget that Canada has quite a few important international companies--our own multinationals--even if they do not occupy the dominant position in other countries which some multinationals seem to occupy in Canada.

To help us bring our judgment into balance on the subject, we have a speaker today with a balanced experience, a Canadian who works for a Canadian corporation which is part of an important international corporation.

I suggest to you that for the next few minutes we can be as one with the author, Thomas Paine, who said, "Whatever has a tendency to promote the civil intercourse of nations by an exchange of benefits is a subject as worthy of philosophy as of politics." I am very proud to introduce to you, speaking on the subject of "The Canadian Global Corporation", Mr. William K. Mounfield.

MR. MOUNFIELD:

Mr. Chairman, ladies and gentlemen: Thank you very much, Sir Arthur. Thank you for inviting me, and thank you for giving me this opportunity of meeting many old friendssome elderly friends that are not old friends, and some old friends that are not elderly. I see Joe Potts down there. Joe and I were together at the University of Toronto a long time ago. I think we were instrumental in forming a thing called the Blue and White Society, which is a strange society for a Liberal to try to form. At that time, Joe was known for his rather bulky coonskin coat. I'm delighted to see that that coat has now shrunk and is gathering around his chin!

Mr. Chairman, you made reference in your introduction to the fact that I was a Parkdale boy. I haven't heard that expression for some time. Back in the days when Parkdale was a sleepy little village on the western outskirts of Toronto, I was born out there. It so happened, as a small boy I would go downtown with my mother on the streetcar, and we would go past a rather formidable factory called "Massey-Harris". They had big high board fences. I believe there was barbed wire on top of that, and behind that there was a foundry. This foundy had fire in it, and smoke billowing out of the chimney, and it was really a most awesome sight for a small boy on a streetcar going by. Seeing my nervousness about this factory, my mother used to say to me, "Now if you don't behave, I'll send you there to work someday." I don't recall misbehaving, but I seem to have stumbled into Massey-Harris!

You also made reference to speaking other languages. You may have heard the story about the Englishman who was going across the Atlantic on the French Line. His name was Peter J. Higginbottom. He didn't want to be disturbed too much, he didn't want to join in the revelry, so he asked the steward if he would put him at a quiet table. The steward said, "There's a French gentleman over there who's by himself. If you sit there, you'll have a very quiet passage."

So he went down the first night to sit at dinner with this Frenchman, and when he arrived the Frenchman stood up and said, "Bon appetit!" And the Englishman said, "Peter J. Higginbottom!" That was about all the communication they managed on the first night.

The second night he went down again, and the Frenchman stood up and said, "Bon appetit!" He was a little puzzled, but he thought maybe he had not caught his name, so he said, "Peter J. Higginbottom!"

The next day he met the steward as he was walking around the deck, and the steward said, "Are you enjoying your table?" He said, "Yes, but this strange Mister Appetit or whatever his name is keeps introducing himself. I don't understand it."

The steward said, "Oh no, that's not his name. He's trying to wish you good appetite. He hopes that you'll enjoy your meal. That's just a French expression."

Mr. Higginbottom said, "Oh, I'm glad you told me! I didn't realize that."

So he went down to dinner that night, and when the Frenchman came in and sat down, Mr. Higginbottom said, "Bon appetit!"

And the Frenchman stood up and said, "Peter J. Higginbottom!"

Well, I didn't really come here to tell you about Mr. Higginbottom. I wanted to talk about a Canadian global corporation.

Ladies and gentlemen, it is a great honour for me to have this opportunity to speak to The Empire Club of Canada. I was particularly pleased when Sir Arthur agreed that I could speak on the topic of "A Canadian Global Corporation". This is a subject which is, of course, of special interest to me.

I use the term "global corporation" rather than multinational corporation since the latter term seems to have taken on some special connotations in recent years.

When we in Canada think of multinational corporations we tend to think of foreign multinational corporations doing business in this country, rather than Canadian multinational corporations doing business abroad. I happen to feel that foreign multinational corporations have done a great deal for the economy of this country over the years and, hopefully, the few Canadian multinational corporations that exist are helping the economies of other countries in the world.

As you have gathered I have spent all of my working life with one large Canadian corporation and, frankly, I am very proud of the things that that (now global) corporation has been able to achieve in its 127 years as a Canadian company. Let me start by telling you a little bit about the history of that company.

It all began in 1847 near the little town of Newcastle, Ontario. Daniel Massey, a farmer in that area, liked to experiment with new types of implements as they became available, and he would adjust, repair and improve those implements for himself and his neighbours. When he was 49 years old, he passed the farm on to his son and he set up a small shop for the manufacture of farm implements. From that humble beginning the company has grown into one of Canada's largest multinational corporations and some of Daniel Massey's descendants have played prominent roles in our country.

In 1947, when we were celebrating our centennial, we commissioned Merrill Denison to write a book about the company. He did so and he called it Harvest Triumphant. Denison referred to his book as "a footnote to Canadian history" and it certainly was just that. It dealt with the development of industry in Canada in the latter half of the nineteenth century, with its problems and frustrations, and its attempts to compete with growing industrial giants to the south. Politicians were struggling with questions of the degree to which Canadian industry should be protected by tariffs, a subject with which politicians are still struggling! In 1876, for example, the depression had become sufficiently serious to result in the appointment of a Select Committee of the House of Commons to inquire into "the causes of the depression in trade and commerce". This was the first of many such inquiries in which the Canadian farm machinery industry was later to find itself involved. It was interesting to note that four firms in the farm implement business in Canada were unanimous in the opinion that they did not wish nor require higher protection. They were confident of their own and the industry's ability to meet any competition.

You may be interested in the reply of C. A. Massey, who was then Vice President of the small Massey Manufacturing Company in Newcastle, which read as follows:

Newcastle, Ont.,

March 31, 1876.

To the Select Committee on Depression of Trade, House of Commons, Ottawa.

Gentlemen:

In reply to a communication received this day from the Clerk of Commons, would say:

We are engaged in the manufacture of agricultural implements and farm machinery. Our average trade is about $100,000 per annum, and this season we are increasing business about twenty percent, and with very fair prospects.

During the past season we did a foreign trade--in Germany--to the extent of some eight or ten thousand dollars, and we anticipate a continuation of that trade.

We may also add that the existing tariff' is satisfactory to us, and is sufficient protection; perhaps even a little less would also be. A still further advance in the tariff would certainly prove adverse to our interest.

I rather like the cocky assurance of the implement people in those days, almost a hundred years ago, and it was certainly that kind of spirit which led to the development of what is now a global corporation whose products are manufactured in 70 plants in 26 countries. I'm sure that C. A. Massey was disappointed when, two years after he wrote his letter, John A. Macdonald was returned to power on a platform in which the principal plank was his national policy of protective tariffs.

In 1886 the company supplied its first orders from Australia and the following year a sales office was opened in London to handle the growing business in Great Britain. By 1888, the company had organized distribution of its products in the West Indies, South America, Scotland, England, Ireland, Germany, Belgium, France, South Africa, Russia, Asia and Australia.

By the early 1900's, about the time the Empire Club was formed, the company's export business represented more than 50% of its production.

In 1927, the company made the final transition from a family concern to a full, publicly-owned corporation. At the same time the company established its first overseas manufacturing operations in France and Germany.

In August of 1953, it was announced that the Massey-Harris Company in Canada and Harry Ferguson Limited of Great Britain had merged to form Massey-Harris-Ferguson Limited, a name which was changed in 1958 to the present Massey-Ferguson Limited. The merger was a logical one for both companies because of the complementary nature of their product lines. It brought together in a single organization all the technical expertise on which all power farming is based-the self-propelled combine and the modern tractor.

The merger was followed by a massive restructuring of the two companies' world-wide interests to integrate them into a single organization. Important new facilities were also added to expand the company's manufacturing base. These included in 1959 the acquisition of the U.K.-based diesel engine manufacturer, F. Perkins Limited, and the tractor manufacturing facilities of the Standard Motor Company, in Coventry.

Massey-Ferguson, in becoming a multinational enterprise, followed the classic route of first exporting on a large scale and then manufacturing abroad.

From our branches and distributors came much of the knowledge of local sources of capital and of governmental and industrial practices necessary for the establishment of new manufacturing facilities.

Sometimes, the reason for our investment in a particular foreign market was a response to the imposition of trade restrictions. National restrictions on imports have, occasionally made it impossible for a local distributor to import our finished products. In certain instances, we have assisted our distributor in establishing local assembly or partial manufacturing. Our early decision to consider the world as our marketplace was reinforced when the Canadian market for farm machinery became duty free in 1944. This meant that there were no tariffs for us to shelter behind. And the Canadian market was too small to offer us the necessary incentives if we were going to survive in a highly competitive industry.

By 1960, Massey-Ferguson had reorganized itself on completely multinational lines. All strategy, procedures and organization were consciously directed towards the global marketplace.

The managers of each of our manufacturing units are generally local nationals and the local language is used in all activities. The general managers must, however, have a good knowledge of English, the language that is used in our inter-unit communications. Similarly, members of the corporate staff here in Toronto, the headquarters staff, who work in English, are increasingly found to be more effective if they speak at least one other major language. Each of our units identifies itself with the local scene, fulfilling the role of a responsible corporate citizen.

Just a word now about some of the various projects thatch we have carried out.

Brazil, for example, is certainly our most successful project in a developing country. It began in 1961 on a very limited scale as a manufacturing joint venture with our distributor, who was already engaged in the automotive industry. The company experienced great difficulty in the early years caused by inflation and currency instability. Despite the difficulties, the company managed to produce a few tractors before the end of 1961. By 1973, tractor production had increased to 20,000 units a year and the Brazilian company had expanded into the manufacture of combine harvesters and farm implements, as well as industrial and construction machinery.

Our newest joint venture project is in Peru. I heard on the radio this morning that they are having political problems in Peru. But we are fortunate there because we are a 49% partner with the government. I don't know what's happening to our 51 % partner this morning! Tractor assembly is beginning, and a new tractor assembly plant is being built to meet not only the requirements of Peru, but also other markets in the Andean group of countries.

In September, 1974 agreements were signed with the Polish foreign trade enterprise, Agromet Motoimport, under which Massey-Ferguson will assist in the expansion and modernization of the Polish tractor industry, leading to the production in Poland of 75,000 Massey-Ferguson tractors and 90,000 Perkins engines annually.

The value of the project, in terms of capital equipment, components and services, exceeds $350 million and is the largest single trade arrangement ever negotiated between Poland and an industrial company in the western world.

We have also carried out projects in Argentina, Italy, and Spain, as well as in Mexico, India, Morocco, Pakistan, Turkey, and Yugoslavia. Licensing arrangements to assemble tractors have been made in Thailand, Portugal, Uruguay and Malaysia. Implements have been licensed for production in Kenya and Venezuela.

Negotiations are well advanced for a joint venture with the government of Iran for the manufacture of tractors and diesel engines in that country. We are also negotiating for a joint venture project in Egypt.

In the Middle East, the oil-producing countries are building up an unprecedented surplus of funds and are embarking on ambitious development plans. Substantial funds are being allocated to support increased production of food.

Those developing countries which do not have oil resources are also putting increased emphasis on food production to minimize their dependence on imports.

Recent international conferences have focused attention on the world's food problems and on the necessity of directing the surplus funds of the oil-producing countries into programs related to agriculture in the developing countries. Because of our experience in the formulation of local manufacturing projects, we have a unique opportunity to assist in these development activities.

Many critics of multinational corporations maintain that we are exporting jobs when we establish a foreign subsidiary, or when we conclude a licensing agreement or when we go into a joint venture in a foreign country. In effect, they say, we are creating our own competitors in these foreign countries.

Experience has shown us that this does not happen. Although our sales in Canada are only 8 % of our total world-wide sales, we in MF Industries manufacture large quantities of goods for export.

Our total Canadian sales in 1974 exceeded 300 million dollars and about 160 million of that went to other countries. In addition to manufacturing combines, balers, forage harvesters, implements and other products for the North American and overseas markets, we make many parts and components for other MF assembly plants abroad. We employ over 6,000 Canadians, and we are just completing a 20 million dollar expansion of our Canadian manufacturing facilities. Our parent company has 24,000 Canadian shareholders, and they hold over 85% of the outstanding shares.

I think it is clear that the establishment of multinational corporations, with their headquarters in Canada, does not inhibit Canadian development. In fact, more Canadian global corporations could be the key to expanding our exports of manufactured goods in the years ahead.

As you know, serious bargaining under the Tokyo Round of multilateral trade negotiations is due to begin very shortly. This will be the first round of trade negotiations under the GATT Agreement since the Kennedy Round of the mid-1960's. The Tokyo Round of negotiations will seek to achieve the expansion and liberalization of world trade through the progressive dismantling of obstacles to trade, both tariffs and non-tariff barriers. One of the objectives of the Canadian negotiators is to expand our exports of manufactured goods, and, specifically, to achieve further processing of our natural resources prior to export. Canadian industry must be preparing now for the 1980's when we will, presumably, see a liberalization of trade around the world.

Trends in our export trade for manufactured goods in recent years have not been encouraging. In 1973, our imports of end products exceeded our exports by 632 billion dollars. In 1974, it is estimated that this trade deficit in end products will be close to 8 billion dollars.

If we are going to reverse these trends, we must exploit every opportunity to improve our exports of Canadian manufactured goods. One of the restrictions on our export capability in the last couple of years has been lack of supply. Many industries in Canada were operating at full capacity and were unable to increase output because of the shortages of raw materials and components which they needed to manufacture their products. But, industry has been expanding manufacturing capacity in Canada, and in some sectors, supply is catching up with demand. In some, I guess, it has even passed demand. We must, therefore, push for further exports to take up the slack. As the Canadian dollar approaches parity with the U.S. dollar and as the U.S. dollar weakens in terms of other foreign currencies, Canadian products should be more competitive in foreign markets.

As developing countries expand their economies, they become potential markets for Canadian technology, management and organizational skill, and the supply of components to assembly operations abroad. In this regard, I was very interested in some remarks which Mr. Andre Raynauld, President of the Economic Council of Canada, made last summer. He said, in part: "We have now reached the stage at which increasing numbers of Canadian firms sometimes associated with other institutions or with government, have developed an innovative capacity of their own. A very substantial effort will be required in the years ahead to broaden this base and ensure that more and more products flow abroad incorporating original Canadian technology, styling and other education-intensive content." He went on to say, "Certain factors suggest very strongly that we in Canada need to develop more of our own specialized multinational companies."

Needless to say, on this last point I agree wholeheartedly.

Now I should like to offer some general comments on the nature of the multinational corporation, its place in the business world, and its relations with governments.

Multinational enterprises have been hailed as a most effective medium for spreading technology, management skills, and capital around the world. They are often able to attract the best managers and specialists; they have the ability to call on reservoirs of experience obtained worldwide; they have the marketing structure which seeks out needs for products and services; they have research units examining new possibilities and adapting them for new market opportunities, spreading the costs over large turnovers; they have the economies of scale, even though the logistics involved are sometimes complex.

Some observers of the international scene have pointed to the leading role of the multinational corporation in stimulating economic growth in the developing countries. Other observers have, however, deplored the rise of multinational corporations on the grounds that in certain of their activities they are beyond the control of government.

No one, as far as I am aware, has suggested that multinational corporations are inefficient. The main points at issue in the debate about multinational corporations do not concern their efficiency, but rather their relations with governments and citizens of the host countries. Multinational enterprises see the world as a single marketplace. Governments, on the other hand, see the world divided into separate nations.

Canadians have expressed misgivings about pressures that the United States government may apply to parent companies, which in turn affect their subsidiaries in Canada. It is hardly surprising that governments do not welcome attempts by another government to use a multinational corporation to give an extra-territorial dimension to its own national laws. The multinational corporation should not be exploited as the agent of one government intruding in the affairs of another. The multinational corporation is no more than an unhappy accomplice in political actions. Apprehension or criticisms should be handled through governmental channels rather than directed at the companies involved.

Much has been written about the extent of investment by foreign multinational companies in Canada and in other countries, particularly in the technologically advanced industries. Here again, I would emphasize that corporations themselves are hardly to be blamed. It is for the people of any country, acting through their government, to decide whether they want more or less foreign investment in particular sectors or generally throughout their economy. If they want less, they must be ready to pay the price if restrictions would mean a drop in their standard of living.

You may recall that a little over a year ago the United Nations appointed a "Group of Eminent Persons" to study the impact of multinational corporations on development and on international relations. Albert A. Thornbrough, president of Massey-Ferguson Limited, our parent company, appeared before that Group of Eminent Persons in Geneva in November, 1973. The Group completed its study and released its report some months ago. One of its recommendations was that within the Economic and Social Council of the United Nations there be established a Commission on multinational corporations. This Commission is to consider and implement many varied and sometimes contradictory recommendations made by the Group of Eminent Persons.

Included in the terms of reference of the Commission is the following: "Explore the possibility of concluding a general agreement on multinational corporations, enforceable by appropriate machinery, to which participating countries would adhere by means of an international treaty."

If this were in fact carried out, it would mean that host governments, home governments, and the owners of multinational corporations would all hand over their respective authorities to an international agency. Results of international co-operation thus far have not been so successful that one can reasonably expect national governments to surrender their sovereignty. What is more likely is that more nations will be undertaking unilateral actions affecting the scope, effectiveness, and operational behaviour of the multinationals.

Multinational corporations have shown themselves to be wonderfully adaptable. I do not doubt that they could evolve to meet either new national or international rules of conduct. However, since multinational corporations are generally industrial corporations, with long-term investments to be made, any ground rules established should have a reasonable degree of continuity.

Canada, as well as other nations, is beginning to define more precisely under what terms foreign investment is welcomed. This can be to everyone's benefit if care is taken to understand the real contribution that a multinational corporation can make.

The Canadian government should, in my view, do much more than oversee the activities of foreign-owned corporations in Canada. It should also encourage the growth of Canadian multinational enterprises.

Canada, with its dependence on world trade and its bilingual and bicultural heritage, should have significant advantages in creating multinational corporations. We are gaining the international business experience and managerial skills to ensure that a reasonable proportion of such corporations are Canadian. They should be encouraged in their operations abroad, for they bring benefits not only to the host countries, but to Canada as well.

Mr. Mounfield was thanked on behalf of The Empire Club of Canada by Mr. Joseph H. Potts, Past President of the Club.