An affable fifty-six-year-old with greying hair and ruddy cheeks, Mitchell got his first taste of China in 1989. His company, which manufacturers and installs grain and animal feed–handling equipment, was asked to participate in a project in northern China. Mitchell was immediately struck by the inferior quality of Chinese equipment and thought he could scoop up a share of the market with his superior product while helping to improve China’s grain-handling system at the same time.
It was the beginning of a fifteen-year odyssey that Mitchell admits would test his belief in himself and come at great personal cost. He moved to China in 1994 but, unable to afford the astronomical rent that most foreign companies paid to keep their employees in comfort, moved into a rundown flat with bad heating that cost just one hundred dollars a month. “I lived pretty rough for a long, long time,” says Mitchell, who also taught himself Mandarin. “I wouldn’t do it again if I knew how tough it was. But I was pretty stubborn — I wasn’t going to give up now.”
But, he acknowledges, he almost did. Not long after he first ventured into China, he sat on his bed in a hotel room, his bags packed, resolved never to return. He had “hit the wall,” his nascent joint venture with a Chinese partner had dissolved in acrimony, and he was exhausted by the relentless price gouging and unenforceable contracts. That night, three employees came to visit him and begged him to stay, offering to pick up their families and follow him wherever he went.
Mitchell took them up on their offer and built his own factory outside Beijing. In the end, despite all the hardship, it has paid off. Mitchell estimates that manufacturing component parts in China has made the company 30 per cent more competitive while its presence there has opened up vast new business opportunities. Multinational giants are now knocking on his door to build dozens of feed mills in China, while in Canada, says Mitchell, you are lucky if one mill gets built.
“We never would have gotten these connections just being in Canada,” he says. “Being in China has been so beneficial to the company. So many people have contacted us because we are there. We’re recognized more as an international company.”
The company, in turn, has grown by leaps and bounds, with more business than Mitchell knows what to do with. In the past decade, the workforce has expanded from thirty to eighty people and sales have increased tenfold. And like a stream that flows downhill, it all trickles back to Canada. “All the profit comes right back here,” he says. “The business is growing, so I hire more people, I buy more equipment from here [for the Chinese operations] and I can hire more salespeople here. Everybody is benefiting from us being in China.”
Yet despite finally reaping the rewards after years of struggle, Mitchell sold the Chinese subsidiary in 2006. His two sons, who both work at the Newton factory, live on sprawling acreages outside of town. They saw what expanding into China cost their father, and they are not willing to make the same sacrifices. Nor do they have to. Mitchell, a farmer’s son, immigrated to Canada at the age of nine from England. His family lived hand-to-mouth, eating a lot of vegetable soup and crackers and maybe, if they were lucky, meat on Sundays. He remembers, at fourteen, vowing he would never be poor.
That conviction, and “a pioneering spirit,” is what he believes compelled him twice in his life to take the road less travelled. The first time was when, at the age of just sixteen, he signed up for the navy. The second was when he was twenty-nine, with three kids and two mortgages, and he decided to forfeit a steady paycheque and strike out on his own.
In both cases he started out with a Canadian-born companion, and both times he was abandoned at the last minute, left to make the risky journey alone. Just as he was about to board the train for Halifax, the high school friend who had enlisted in the navy with him backed out. When it came time to start his own business, his would-be partner changed his mind, opting to keep his job at their old place of work. Mitchell eventually went on to hire his former co-worker. “He used to tell me,” says Mitchell with a smile, “that it was the biggest mistake he ever made.”
* In 2006, Huawei landed a five-year, twenty-one-country contract to supply Vodafone, the world’s largest wireless operator, with handsets based on third-generation technology.
* Australia has three banks in the world’s top fifty, according to the Fortune 500 list of the world’s biggest companies (2006), compared with one Canadian bank.
† Carrefour rings in at number twenty-one on the Fortune 500 list, with an annual revenue of us$90.4 billion, compared with George Weston’s us$23 billion.
* American-born Robert Milton was chief executive of Air Canada before taking the helm of its parent company, ace Aviation, and British-born Clive Beddoe heads up WestJet; now, both of Canada’s major airlines are run by foreign imports.
† The Saskatchewan Wheat Pool was originally founded as an anti-corporatist co-operative by prairie farmers.
‡ Canadian Business magazine named Canadian Tire’s Virginia-born Wayne Sales as Canada’s top CEO in 2005. Sales stepped down in 2006.
* Cott’s American CEO , John Sheppard, stepped down in May 2006 to be replaced by another American, Brent Willis.
† Orton may no longer need to commute, since Advanced Micro Devices ( AMD ), the California-based microprocessor manufacturer, announced in July 2006 that it would acquire ati for us$5.4 billion.
‡ George moved to Calgary in 1991 to head up Suncor, and in 1996 he proudly took up Canadian citizenship.
* According to a ranking by brandz, a list compiled by London-based market research firm Millward Brown.
* Between 2000 and 2004, Canada’s productivity performance ranked twenty-fourth out of twenty-nine oecd countries.
* In contrast, Australia has signed 20- to-30-year energy supply deals with China worth some $30 billion.
* In December 2006, the British Columbia Utilities Commission rejected Alcan’s electricity agreement with British Columbia Hydro and Power, arguing it was not in the public interest. As a result, Alcan threatened to scrap the project.
* Interestingly, the only two major miners still headquartered in Canada, Barrick Gold and Teck Cominco, are both run by Canadian CEOS .
3 TARIFFS AND TRAINS:
HISTORY ’ S LAST SPIKE
“Canadian businessmen, in their cautiousness, have carried their slowness to decide upon a matter too far for their own good, and have in their desire to be absolutely safe let pass many a good opportunity.”
FRANCIS HECTOR CLERGUE, FOUNDER OF ALGOMA STEEL, 1901
SIR JOHN A. MACDONALD, Canada’s first prime minister, spent much of his long and colourful career haunted by demons, real and perceived. In the mid-1870s, the threat was particularly ominous for the country’s number one nation builder and unabashed power broker. The fledging confederation of thinly populated and disparate territories that Macdonald cobbled together in 1867 seemed in danger of dying on the vine. The world was grappling with the first-ever global depression, as advances in transportation and technology had sent commodity prices tumbling. Trade in Canadian cod and logs had fallen flat while a quarter of the country’s four million inhabitants had headed south to work in the textile mills of New England and the blast furnaces of Pittsburgh.
America’s newfound industrial might and the threat of annexation loomed large over the newly minted country, adding to the dark clouds already swirling over Macdonald’s uncertain political future. Forced to resign in 1873 after being caught offering railroad entrepreneurs lucrative concessions in return for handsome campaign contributions, Macdonald was anxious to rehabilitate his tarnished reputation and reclaim his hold on power. The question was, how?
Cheap, American-made products were flooding the Canadian market, prompting wide-scale layoffs and factory closures. It was becoming increasingly clear that “marauding Americans” and high U.S. tariffs, imposed after the Americans abrogated the reciprocity agreement with the provinces in 1866, were to blame.* Was there not a way to harness the growing disaffection in the streets and its strong anti-
American undertones, in such a manner as to rehabilitate Sir John’s sagging fortunes while securing Canada’s fragile nationhood?
In the latter half of the 1870s, the Ontario Manufacturers’ Association,† riding a wave of protectionist sentiment, provided Macdonald with just such an opportunity. The group proposed raising a tariff wall around domestic industry. By keeping foreign manufacturers out, local producers could expand their market with unhampered and mutually beneficial trade within the Dominion. Ontario could ship her breadstuffs to the Maritimes in exchange for Nova Scotia steel, all the while providing desperately needed jobs for the nation. The tariff would not only earn Macdonald the loyalty of the manufacturing interests but, if presented in the proper light, that of the working class as well, while appealing to the nascent tugs of nationhood.
The close alliance forged between Macdonald’s Tories and the Ontario manufacturers struck a highly effective chord, and in 1879 Sir John, successfully reinstalled in the prime minister’s office, unveiled the now-famous National Policy. The plan, which aimed to foster nascent industries through a high protective tariff, evolved into an ambitious blueprint for national development that included the building of a transcontinental railway and the settlement of the West. Each prong of the policy would be to the benefit of the others and would be financed through the revenue-generating tariff.
The natural outgrowth of a colonial mindset that had long been geared to favouring corporate elites and heavy-handed government intervention, the tariff also appealed to an already deeply rooted belief that Canada’s “infant industries” needed to be nurtured if they were to grow and eventually compete in international markets. Before the tariff was erected, Ottawa was flooded with petitions for protection, notes Ben Forster, a Canadian business historian, in his book A Conjunction of Interests: “A bemused Lord Lorne reported to England that ‘everyone who has ever raised a pig or caught a smelt wants protection for his industry.’”62
But what made the National Policy so different and ultimately seared it into the Canadian consciousness was its ability to equate the protection of vested interests with a nationalistic endeavour to protect the Canadian identity. As Sir John ably explained, the country needed to foster industry “to bring out the national mind and the national strength and to form a national character.”63 For a country whose half-hearted move from colony to British dependency had been a dry act of legislative calculation, it was the closest thing to a popular call to arms. “It was a brilliant political play by the manufacturing class,” says Duncan McDowall, professor of Canadian business history at Carleton University. “It combined protectionism, national policy and the identity of the country.”
The emotional link between trade and nationalism would colour Canadian policy decisions for the next century, inextricably melding patriotism and protectionism. The National Policy, under the guise of serving the public good, would encourage the creation of coddled state-sanctioned monopolies while entrenching a clique of well-connected businessmen trained to seek government favour. Perhaps most damaging of all, the high tariff walls and obsession with making “Canadian goods for Canadian people” would blind Canadians to selling to the rest of the world.
Originally presented as a temporary measure aimed at pressuring the Americans into reciprocity, the tariff became indelibly etched into the Canadian business model. Protecting national turf and shutting out foreign competition became part of the “genetic code” of the business community, says McDowall. According to Roger Martin, dean of the Rotman School of Management, “The National Policy was the most damaging thing to happen to Canadian business. There should have been a sunset clause, like parenting.”
At the time, however, it appeared to work, at least in the beginning. The economic depression seemed to end as agricultural prices rose and as factories, refineries and mills sprang up across the country. Quebec and the Maritimes, hoping to repeat the success of New England, built textile mills. Sugar refineries went up in Halifax, Montreal and British Columbia, while tariffs on coal and iron fuelled ambitious iron and steel works — the symbol of industrial success in the nineteenth century— in Nova Scotia.
But as miners in Cape Breton dug for coal to feed the forges and blast furnaces, it quickly became clear that tariffs on primary steel and iron also hurt a number of industries that relied on the primary material, including foundries, sewing machine manufacturers, agricultural implement makers and engine works. As Sir Richard Cartwright, the former Liberal finance minister and free-trade supporter, pointed out at the time: “A great many manufacturers are suffering seriously from the National Policy, and that fact can hardly be brought out too prominently.”64 Hamstrung by highly taxed inputs, manufacturers were effectively condemned to the Canadian market, their products too costly to compete abroad.
But there was an even more insidious and, in the long run, arguably more damaging side effect of the National Policy. Despite their ostensible goal of erecting walls to keep out unscrupulous Americans, the tariffs had the opposite effect. While later Canadian “nationalists” would argue that American firms had somehow managed to circumvent the tariffs, the barriers expressly or indirectly encouraged the wholesale relocation of American subsidiaries to Canadian soil.
The combined effect of the National Policy and of the 1872 Patent Act, which allowed non-residents to hold Canadian patents on the condition that they manufacture domestically within two years, was to graft American industrial might onto its weaker northern neighbour. The result was the immediate transfer of American technology and the growth of Canadian manufacturing, and, most importantly, jobs. By that measure, it was a resounding success. The trickle of American investment widened into a torrent as U.S. transnationals set up branch plants to serve the Canadian domestic market or to re-export to the British Empire using Canada’s imperial trade preferences.
The Americans were often lured by municipalities, anxious for industrial development, that vied with each other to offer cash bonuses, tax exemptions, free land, interest-free loans and even wage subsidies. Hamilton offered a free seventy-five-acre site and $100,000 for American investors to erect an iron and steel mill in the city. Similar enticements were dangled in front of Westinghouse and International Harvester. By the early 1900s, many of the biggest U.S. companies had jumped the wall, including Singer Sewing Machine, American Tobacco, Gillette and Coca-Cola. By 1914, Canada was home to 450 branch plants and subsidiaries. Fifteen years later, more than 40 per cent of the nation’s machinery, 68 per cent of its chemical products and 83 per cent of its automobiles were manufactured in American-owned factories.65
As Americans piled into Canada, scant few Canadians were attempting to scale the high walls they had erected around themselves. There were some exceptions. A year after Samuel Moore launched his business-forms printing company in 1882, he opened a factory in Niagara Falls, New York, to manufacture sales books. He expanded into Australia and Britain, and in 1929 moved into Latin America, eventually turning his Moore Corp. into the world’s largest business-forms company.
For many years, however, Ontario farm-equipment manufacturer Massey Harris was Canada’s first and only true multinational. By 1888, buoyed by its strong marketing and innovative designs, the company was exporting to Australia, Africa, Germany, Russia, South America and Jamaica. Not surprisingly, Massey Harris opposed the tariff policy, arguing that duties on steel and metal parts made it impossible to compete against American rivals in foreign markets. In 1894 the company threatened to shift production to the United States if the government didn’t refund the onerous levies.
Massey Harris’s contrarian stance was indicative of pattern that would quickly emerge in Canadian business: Daniel Massey, the company’s founder, was an American who had moved to Northumberland county in the early 1800s. (The Harris family, who merged their farm-machinery company with Massey, were also American émigrés.) According to Glen Williams, author of Not for Export, Massey’s opposition to the tariff was symptomatic of “many aggressive e
xpatriate Americans who did not fear world competition and who, in fact, had not given up their dreams of access to the larger U.S. market.”66
The other significant international foray was by a coterie of businessmen in Montreal and Toronto who had grown rich on the railways and had branched out into streetcar franchises and electric utilities. In 1898, a Canadian syndicate led by Fred Stark Pearson bought a concession to build an electric streetcar in São Paulo, Brazil. The group went on to build the trolley system in neighbouring Rio de Janeiro as well as the power plants for both cities. Eventually incorporated as Brazilian Traction, Light and Power Co. — better known until recently as Brascan* — the company’s reach was so extensive that it became known as the “Canadian octopus” and until the 1950s was Canada’s largest overseas investment. “There is no denying Rio and São Paulo are the cities they are today because of the access to cheap energy [that Brascan provided],” says McDowall.
Pearson, a brilliant engineer and indefatigable adventurer, followed up on the Brazilian success by branching out into Mexico and later Spain. One of his main backers was Sir William Van Horne, the fabled president and general manager of the Canadian Pacific Railway, who had built Cuba’s railway and backed another in Guatemala, along with utilities in Jamaica. The two men had at least two things in common: they were both at the forefront Canada’s newly forged engineering prowess and they were both American.
Perhaps as a sign of things to come, the Ontario energy utilities were nationalized in 1906. The move was once again backed by the Canadian Manufacturers’ Association, which, unhappy with high electricity prices, had lobbied for public ownership of the utility. Sadly, despite the impressive engineering ability and experience in power generation, Canada would never again venture into international markets on such a scale, limiting itself to obscure forays by bureaucratic and ill-equipped provincially run corporations.
Why Mexicans Don't Drink Molson Page 9