Communicating in the New North American Market

A number of recent speakers at this Empire Club lectern have spoken of the difficulty in finding a solution to Canada's constitutional crisis. Politically, it has been a long winter!

On five separate occasions in the dread of winter, significant clumps of Canadians have huddled together in hotel ballrooms and other confined spaces across the country to talk about the Constitution. As the participants in the constitutional conferences would undoubtedly concur, these meetings are not the kind of event they make beer commercials about.

The giant constitutional shadow is still cast across the land. From time to time, the Mulroney cabinet peeps out at itself from the (temporary) security of the Peace Tower. And the rest of us are assured of at least six more weeks of constitutional winter.

However, the crocuses are now blooming at the feet of Sir John A. Macdonald on Parliament Hill. The constitutional situation remains uncertain. The recession is still deep. Unemployment figures are dreadful. Nevertheless, it is spring! And Canadians are starting to look expectantly for the first indications of a spring thaw in Canadian politics.

Politicians will undoubtedly view the report last week by the United Nations Development Program as an attractive bouquet of spring flowers. In the report, Canada topped every other nation in the world on what the agency calls the Human Development Index--an index that measures national progress in terms of education, life expectancy and income, a combination designed to capture elements of achievement (public health, safety, learning, opportunity and social justice) that are usually neglected. It is a compliment that may well turn stale as it is trumpeted endlessly across the country by politicians.

Another crocus, if you will, is yesterday's announcement by the International Monetary Fund. The IMF expects Canadian economic growth of five per cent to lead the industrialized world in 1993. Its message in effect, "Wait 'til next year," is one to which recession-weary Canadians, like Toronto Maple Leafs' fans, have grown accustomed.

These positive signals represent the first sign of spring in the Canadian economic and political scene. Like the crocuses, these are all small indications of positive change.

Against this somewhat upbeat backdrop, I would like to introduce our guest speaker, Lorraine McCaughey. Her speech is entitled Communicating in the New North American Market.

Her remarks relate to a profound change impacting our nation. Globalization--the combined processes of increasing international trade, investment and direct foreign investment--in a real sense is "opening" Canada to the world.

On a political map, the boundaries between countries are clear. But on a competitive map, a map showing the real flows of financial and industrial activity, those boundaries have largely disappeared.

Today's global corporations, according to international management consultant Kenichi Ohmae, are nationality-less. Consumers have become less nationalistic. You don't worry about where the product was made. What you care about is the product's quality, price, design, value and appeal to you as a consumer.

Nowhere is the trend to globalization more evident than in the field of communications. The recent news coverage surrounding Olympia & York, the Reichmann brothers' embattled property company, illustrates an important ongoing development in the field of corporate communications. With the increased sophistication, geographical scope and frequency of financial news coverage, both in the electronic and print media, it takes no time for events in the nation's boardrooms to become news in the nation's living rooms!

Corporate news items--whether involving debt rescheduling programs at O and Y, executive wrist-slapping at General Motors, stratospheric compensation packages at Coca-Cola, events that were once known to only a small fraction of the public--now compete with events involving media superstars such as Madonna and Wayne Gretsky.

Media sophistication is contagious; it is quickly spreading beyond the boundaries of the industrialized world. In his recent text Give War A Chance, satirical journalist P. J. O'Rourke claims that street urchins in Belfast routinely ask reporters: "Will you be needing a sound bite?" And, they second-guess photographers choices of shutter speeds!

Not only does news travel fast, it travels far. When a major business story, for example, unfolds in Canada, investors in New York, London and Tokyo hear about it as soon as investors in Toronto. It was a Canadian who said the world was becoming a global village. If McLuhan was right, then the media have become the global town criers.

We live in an information age where business is significantly influenced by the two F words: Fax and Federal Express. In this electronically-charged environment, where information is transmitted with a crackling urgency, how should corporate Canada respond to the pressures of globalization? What steps should companies take to behave like model global citizens? How can corporations overcome a headquarters mentality, myopically focused on the markets closest to them? Can Canadian companies position themselves to play a leadership role in the interlinked economy of the future?

To enlighten us on these issues and others, I am pleased to invite Lorraine McCaughey to the lectern.

It has been said that people are divided into three groups: those who make things happen, those who watch things happen, and those who wonder what happens. Lorraine makes things happen.

Lorraine is the President and CEO of Burston-Marsteller Canada Limited, the Canadian subsidiary of one of the world's largest public relations firms. With Burston, and prior to that as a Senior Vice President of a communications consultancy in New York, Lorraine has worked with many senior corporate executives, both in handling crisis communications and in developing long-term messages.

She began her communications career as a journalist with Fairchild Publications and subsequently with Advertising Age. As well as heading up Burston-Marstellar in Canada, Lorraine is a director of the worldwide operation. She also serves on the boards of several non-profit organizations, including The Conference Board of Canada and The Board of Trade of Metropolitan Toronto.

Ladies and gentlemen, please welcome Lorraine McCaughey.

Lorraine McCaughey:

Thank you John for that kind introduction. Mr. President, head table guests, members of The Empire Club of Canada, ladies and gentlemen.

I am delighted to be here today to speak about the new North American market. Before I begin, I should say that I am not here to explain the North American Free Trade Agreement (NAFTA), nor am I here to tell you why we do or do not need it.

Today, we already have a North American market. So, the issue is how to best deal with some of the challenges that are emerging as Canada, the U.S. and Mexico move to liberate their trading relationships with each other.

In particular, I want to talk to you about the important role that communications can play in identifying the obstacles and seizing the opportunities that are sure to arise as the formal barriers to trade fall.

I am going to take the opportunity to refer freely to the thinking of my colleagues in the Burston-Marstellar organization, including our Canadian Chairman, former Ambassador Allan Gotlieb, and B-M Director, former U.S. Senator William Brock. Both of these men have had more than a passing interest in the original Free Trade Agreement and their views appear in the recently published Burston-Marstellar document The North American Free Trade Agreement--A Communications Update.

As you will know from my introduction, I stand before you, not as an expert in trade negotiations, but as a representative of a firm that is experienced in helping organizations use the tools of communications to manage change.

Let me begin by putting our current preoccupation with trade in perspective. It strikes me that in the commentary about the pros and cons of free trade, there has been a tendency to ignore history.

Some would have you believe it is only now, that we are in a position to "go global." We seem to forget that when the North American continent was discovered 500 years ago, Columbus wasn't looking for the New World. He was on a mission to find an easier way to get to the Orient.

He was trying to overcome what, at the time, were regarded as some pretty formidable non-tariff trade barriers--oceans, mountains and deserts.

Clearly the notion of trade liberalization has been around for a while. What has changed over time is the nature of the barriers that need to be overcome.

Were Columbus here today, I think he would find it ironic that while technology has enabled mankind to overcome most of the natural barriers to trade, after 500 years the most resilient obstacles to trade liberalization are the ones that are man-made.

The negotiations leading to a North American Free Trade Agreement are an important step forward in scaling down the man-made barriers that we have erected among our three countries.

But NAFTA is only one step. It is an attempt by governments to manage a process of change that is inevitable and already well advanced. The smart players in the new North American market aren't waiting for governments to decide on a free trade arrangement with Mexico. They're at it now. Some of them like the Ford Motor Company, AT and T, Northern Telecom and Bombardier have been at it for years.

When these companies look at Mexico, they see opportunities in the renewal of infrastructure, telecommunications, transportation, the manufacturing sector and an expanding market for services. In the process they are actively positioning themselves to capitalize on the new opportunities that will flow from NAFTA

I'm sure most of you are familiar with the successes that many of these high-profile companies have achieved in Mexico. If you think that these opportunities are only open to the largest companies with the deepest pockets--think again.

There are at least as many examples of smaller size companies that have also met with success south of both borders. All of these successes demonstrate that a benefit for one country is not necessarily a loss for those on the other side of the border.

Since I assume that most of us in this room live and work in Canada, and that many of us have already done business in the United States, I would like to spend more time talking about the Mexican marketplace, which is newer, more foreign if you will, to most of us.

What does Mexico bring to the table in our quest for improved competitiveness? If you ask the Mexicans, they'll tell you the Mexican people are the country's greatest asset. They are young. They are energetic. They are well-educated. And they are eager to seize opportunity.

There is a widespread agreement among economists that as prosperity and employment (and the resulting payrolls) increase in Mexico, so will Mexican purchases of products produced in the U.S. and Canada. New markets for a great variety of consumer goods will be created as more Mexican families are able to afford them.

When Ford set up its $500-million state-of-the-art manufacturing plant in Hermosillo, Mexico, in the late 1980s, they found a young, well-educated work force in the local community, willing to adapt to new production techniques. The result has been impressive. Within two years, the Hermosillo facility was winning accolades for the quality of its products.

Demographics also help to tell the story. While marketers in Canada and the United States are facing an aging population, over 60 per cent of Mexicans are under 25 years of age. It is also remarkable and worth mentioning that Mexico has a 90-per-cent plus literacy rate as a result of an ambitious literacy campaign started in the late 1970s.

Mexico has other attributes that make it a valuable partner in North America's quest for competitiveness. Mexico's economy has experienced unprecedented growth in the last several years.

The Salinas administration has implemented a number of dramatic domestic reforms aimed at rationalizing the role of government and increasing reliance on the private sector to stimulate growth. These reforms have given the Mexican people their first taste of real prosperity in more than a decade.

Unlike the struggle for economic renewal that has been unfolding in Eastern Europe and Russia, the people of Mexico are familiar with the operation of a market economy. They understand the principles of business and the motivating power of profit.

In less than five years, Mexico has gone from an underdeveloped country with few expectations to a bold negotiating partner in what could soon be the largest trading zone in the world.

For Canadians, the NAFTA marks a significant departure from past attitudes of relative indifference towards Latin American trade. It marks a new outwardness on the part of the Canadian business community and a new awareness about a major potential market, especially concerning energy, technology, transportation, urban development and engineering services.

Canada-U.S. two-way trade totals about $200 billion annually, while Canada-Mexico trade is only about $2 billion. So there is high potential upside for Canadians, especially in view of Mexico's new market-oriented policies.

There is potential but there is also challenge in the broad tripartite market. There will also be a bewildering pattern of laws and regulations touching on labour, health, the environment, taxation, safety and social values occurring at the national, state-provincial and local levels. These differences are very likely to grow in complexity and they will often conflict.

Many new barriers yet to be erected will be less visible than the tariff barriers and quotas of the past but they will take on enhanced importance in the new environment. They will often be more difficult to overcome than the traditional ones.

Let's consider some of the sobering realities of communicating in a North American market that is destined to become increasingly complex.

Then I'll leave you with a few key principles that we have found effective in helping some of our clients cross the Rio Grande. In the new North American environment, several factors will stand out:

A more complex marketplace will put a premium on obtaining intelligence about problems and issues that exist within these new jurisdictions. There will be specific implications for industries in such sectors as energy, banking, insurance, rail and air transportation, trucking, electronics and manufacturing in general.

Marketing on a continental scale will require understanding, not only of the wider North American space, but of local markets, as in the European Community today. Local and regional preferences will still abound.

The increased penetration of television and advertising, new trends and cultural styles, environmental expectations and the like will move through markets faster, creating new social demands, new consumer expectations, new fads, new environmental fears and prejudices.

Consequently, the effects of negative information may be steeper and more dangerous than ever. There will be a greater need to deal with the widening of crises in this monolithic communications environment.

For these reasons, it is clear that Canadian business will need the best possible advice to survive and prosper in the new North American marketplace. The emphasis will be on understanding the much larger and more complex marketing context.

New strategies for reaching the broadest possible North American space, new approaches for overcoming less visible, but still formidable barriers, new ways of understanding local and regional preferences, will all be required for the successful North American businesses of the future.

You know, not long ago, news circulated to and from Mexico, the United States and Canada only after being filtered through a handful of reporters based in the respective capitals of these countries.

The people who wrote the news were generalists and from their Mexican base dealt, as best they could, with the rest of Latin America What you ended up with was news that was pretty two dimensional and relatively uninformative.

Today, more and more specialists from the business, political and lifestyle sections are pursuing stories in their own areas of interest. They have become issues-oriented reporters with an in-depth knowledge of events, trends and personalities.

Their activities, their attitudes, and their comments are having a direct impact on economic segments that cut across political boundaries. The demand for timely, high-grade information is driving this globalization of the news media In the process, the barriers to communication are evaporating.

News in the new North American market is travelling at the speed of light from the Yukon to the Yucatan, from Spanish to French to English and back again. It is being transmitted via satellite, microwaves and fibre optics and served up for your consumption 100 different ways every hour of every day.

When we combine Canada, the United States and Mexico, we are talking of 2,700 daily newspapers, more than 10,000 magazines and radio stations and over 1,500 television stations.

Companies doing business in all three markets who need to reach the media will have to do so with the same speed as the various media communicate with each other.

A new trilingual capability will be required with an understanding of nuances and local cultural jargon. In this environment, having a good story to tell and a strong set of lungs won't get you past the obituaries.

If you're interested in using communications--public relations--to make some noise about something you're doing in this bazaar of a media market, you're going to have to approach the task with a high degree of precision, thorough research, an articulate message and a reliable source of intelligence based in the markets that you're trying to reach.

Let me come back to the language issue for a moment because it has such a profound impact on the way we communicate. Of the total population of the new North American market, 30 per cent, or approximately 110 million people, are Hispanic.

Now given Canada's experience in managing two official languages, I think we are perhaps better equipped than our American cousins at understanding the importance of respecting cultural and linguistic diversity.

This is an attribute that will serve us well as we make ourselves known to those in the new North American market whose first language is neither English nor French. When doing business in Quebec City it is usually imperative that mid-and field-level operatives for companies speak French.

When doing business in Mexico, it is also imperative that mid- and field-level operatives for companies speak fluent Spanish.

It is, therefore, all the more important for the North American community to understand that English may very well be the easiest common language of business, but not necessarily the language that would be applicable in all cases, and certainty not to close all deals.

Of course the Americans are not without their own capabilities in this area. Hispanic outlets are among the fastest growing segments of the U.S. media. And it's easy to understand why. There are more people in the United States whose mother tongue is Spanish than there are in Canada whose first language is English.

Regardless of who may have the edge, practising communications in a tricultural environment will be challenging.

Companies will be compelled to create brand names and packaging that are decipherable in all three languages. Product presentations and marketing communications will have to identify product positioning, nomenclature and commercial messages that transcend the nuance of national origin while appealing in a common vernacular to a common cultural base.

The challenge really goes beyond language. Companies will also have to provide measurement information in both the metric and U.S. systems. They will have to address mandatory warnings and content disclosure statements that meet the laws of three distinct nations.

And they will have to deal with the unique technical standards and regulatory regimes of all three countries. Unlike the newly formed European Economic Community, the North American market will not have a central governing body to guide overall North American policy.

And that in itself will be a major communications challenge. There are differences in culture that must be factored into the equation. Many of these are obvious, but some of the more important ones are subtle and imperceptible to outsiders. These are the ones that will produce unpleasant surprises that can scuttle a deal. The cultural side of business negotiations is different in all three countries.

Closing a deal in Canada often is a product of searching for compromise. In the U.S., there is an addiction to 100-page legal documents. Whereas in Mexico, a verbal commitment between two parties is usually sufficient to close a deal.

It is, therefore, obvious that the geographical, political and cultural diversity of the huge North American market will generate challenges for business seeking to expand their continental market. So what are some of the prescriptions for succeeding in the face of these challenges?

First, don't assume that you can export any or all marketing and communications assumptions. You will be marketing to the huge demographic segments that speak three primary languages while subject to the legal, regulatory and communications environments of all three nations.

While trade negotiations currently taking place will work to simplify marketing tasks, the complexity of the challenge is evident.

So is the reward, because a pot of gold awaits the marketers who successfully transcend these regulatory, linguistic and cultural differences to cost effectively reach the broader pan-regional consumer markets. The solution to some of these problems may be the careful selection of a strategic partner in the target country. Ingenuity is the key.

Second, know the infrastructure. Mexico has a population more than three times that of Canada It offers marketers a tremendous opportunity for growth in the form of consumers with a propensity to acquire almost anything Canada or the U.S. has to offer.

But there are inadequacies in the Mexican commercial infrastructure that are sometimes impediments to trade with that country. For some, these impediments will become opportunities.

For example, most Mexicans do not have phones and those that do often curse the phone systems. This may make telemarketing difficult for some marketers, but it certainly offers phone companies a chance to break new ground.

Because of weakness in the Mexican distribution system--highways, transportation etc.--people tend to rely on regional products. Without a strong nationwide distribution system, the kind of dominance some brands have in America or Canada wasn't previously possible in Mexico. This will change with $5.9 billion being invested in highways and the privatization of telecommunications.

Third, know the issues. Mexicans are putting their political leaders under increased pressure to provide clean air, clean water and protection from industrial wastes. The crisis over Mexico City's air quality has sparked a rapidly growing, increasingly middle class, environmental movement that now monitors government and corporate activity. As well, the free trade talks themselves have increased international scrutiny. Since President Salinas took office, the environmental budget, while still small by international standards, has grown by 600 per cent. The bottom line is that corporations face greater public scrutiny than ever before.

Fourth, understand how the government works, and who can influence it. Companies need to monitor and affect the process to protect or further their own interests. Sound analysis and experienced counsel will be necessary for companies wishing to take advantage of the unfolding opportunities.

Consider the complicated political scenario that NAFTA poses. Three sovereign national governments with 91 states or provinces, thousands of local governments, tens of thousands of laws, and three languages are enough to keep even the best political analyst working overtime.

And, as I've already mentioned, all of this has to sort itself out without a central governing body to guide overall policy. With this as a starting point, it is hard to imagine a more challenging public affairs environment.

Fifth, don't forget about your constituencies back home--your shareholders, employees, local communities and governments, to name a few. While their interests rest with the global activities of a company, their concerns usually lie closer to home.

While you are touting the benefits of that new manufacturing facility south of the borders, they will be wondering what may happen to their own jobs. Explain, listen, and keep them informed.

Even if you are planning to move your whole operation to the U.S. or Mexico, remember that you're still going to want to sell back into your home market. Your factory may be gone but your corporate reputation can linger on for years. You control whether that reputation is good or bad.

It is clear that the enterprises that succeed in the newly unified North American market will be those that gain the earliest and best insight into the diversity of the people, politics and culture of its component parts.

With hard work, quality products, insightful advice and a determination to succeed, I'm certain that there will be many Canadian players on the new North American stage.

Thank you.

The appreciation of the meeting was expressed by Nona Macdonald, a Past President of The Empire Club of Canada.