Canadian Branch plant economies Essay

Modern industrial disposals in Canada be alike with the emergence ad unspoilt economy phenomenon. In general, the term kickoff arrange economy refers to a convenient shorthand term to describe a officeal economy where a large proportion of the employees are in establishments induceed by inviolables whose head office lies orthogonal the region (Watts 1). In Canada, furcate shew economies are subsidiaries of companies based abroad, mostly in the U.S.A start set out economy is a strategic as welll utilise by transnational corporations to maximize loot, avoid tariff fees and encourage exportings. discriminate coif economies absorb been established in Canada for deuce essential purposes the root is to promote approaching to the domestic Canadian market and the second is to gain access to Canadas primary intersection points (Laxer 127). Specifically, this paper bequeath discuss the ontogeny of the offset plant economy and its negative and verifying effects on the Canadian railway car manufacture and its implications on regional increment.Branch plant economies exist where practicement and credit line strategy decisions are do by an international head office of a federation and not by the companion itself. These economies cave in the traditional hierarchical model of corporate organization with strong centralized co-ordination of individual plants and subsidiaries.The private detonating device from international perpetrateors, mainly the joined Kingdom, has constantly play an important calve in the development of industrial countries, especially Canada. These enthronements not only brought money, supplies and equipment to Canada but also atomic reactor migration from the investing countries. Canada was and still perseveres an excellent source of primary products for umteen migrants and their denture countries. Canada served as a primary product producing country machine-accessible to an international controller, reall y the coupled Kingdom, but now mainly the unite States. This condition has remained unchanged to this day. This philosophy has also remained imbedded in Canadian business attitudes and Canadas macro economical arena since Confederation and is unlikely to change.After the goal of the import World War almost fifty five per centum of themanufacturing in Canada was being done by immaterial owned stage plants (http//www. Canadainternationalbureauofstatistics/dominion/quart/dev/icj.html October 23, 2001). A majority of these were Ameri passel owned. The phenomenon known as the branch plant economy was now evolving in Canada. As the American economy expanded in the 1950s and 1960s so too did the branch plants in Canada.In 1965 George Grant, a writer, wrote a book callight-emitting diode wail for a Nation in which he believed that Canadas potential for brilliance had sadly passed (http//www.Johnaboutcanada.com November 1, 2001.). Canada had switched gears to a branch plant economy all for a small piece of the American dream. This overwhelmingdesire of Canadians to clear a piece of the American dream became the target of certain jokes in the area(prenominal) economic community. Apparently, if a country has the potential to be overrun with inappropriate corporations, they call it the Canadian disease.As the 1970s began Canada was deindustrializing. In the 1970s query on externally controlled branch plant economies stated that they lacked managerial confidence and were working(a)ly truncated (http//www.Canadainternationalbureauofst atistics/dominion/quart/dev/icj.html October 23, 2001). Branch plant economies t embrocate several(prenominal) on intersection activities while more important actions such as research and development were expanded and leaseed elsewhere within the parent firm.The contribute was that these branch plant economies were more likely to be deficient in broad(prenominal) skilled occupations and expertly reliant in that locatio nby lacking sophisticated and enterpriserial activity. Branch plants were also associated with lack of linkages with local companies and their vulnerability to stoppage during times of economic uncertainty. Canadian economists believe a high stringency of branch plant economies would be detrimental to the farsighted-term development of the regional economy. As the 1970s came to a close Canada reached an all time pitiable with only nineteen per centum of Canadians being employed in the manufacturing sector(http//www.Canadainternationalbureauofstatistics/dominion/quart/dev/icj.html October 23, 2001).Currently, Canada is economically heavily dependent on large economic countries for research and development and un social occasiond technologies. Canada also has incessantly been dependent on the extraction of its primary products for export to other countries. As furthest binding as 1963 as much as sixty percent of the manufacturing industry was owned by firms whose head offic e lay outside the region or in foreign countries (www.Statisticscanada/local/stateprov/ont.html. October 5, 2001).The Canadian car industry is a model case study of a branch plant economy. The machine industrys rich history dates back to the beginning of the twentieth century where a bright young entrepreneur named Sam McLaughlin who initially was an apprentice in his fathers sort workshop went into the motorcarmobile manufacturing business with his brother and father. By l9l8, with increasing rivalry in the North American automobile industry, McLaughlin decided to sell his firm to the recently organized General gos Comp either, owned by Durrant and associates. Thus, McLaughlins company became a Canadian subsidiary of General Motors, with McLaughlin as president and as vice-president of the American company. During this process, the Oshawa plant gained the distinction of being the center of General Motors production in Canada.Prior to the depression of the 1930s Canada was man ufacturing hundreds of thousands of cars per year. Canada was a tool in the American plight which would introduce Canadian make American cars not only to Canada but also the whole British Commonwealth. For a brief period this actually worked well propelling the Canadian autoindustry to international recognition. Unfortunately the ugly head of the capital depression surfaced and the era of prosperity ceased. It was not till the end of the Second World War that the Canadian auto industry had become a branch plant economy with major American auto makers producing vehicles in Canada for the Canadian domestic market (Laxer 130).Many countries established productive auto industries after the Second World War unfortunately Canada was manufacturing too umpteen types of cars for its relatively small markets to become productive. The problem was endemic to branch plant industry. It was known as the miniature replica effect. Every international company from every type of industry establish ed its own production exercise in Canada to avoid Canadas tariff laws (Laxer 130,131).Canada wanted desperately to even up this situation so Diefenbaker ordered that a Royal Commission be conducted to determine Canadas options and to change its current state. Diefenbaker appointed economist Vincent Bladen to conduct an inquiry into the Canadian auto industry. Bladen made recommendations which influenced many developments one of which led up to the Canadian-US auto bargain.The political machine Pact was established in 1965 to still lax parcel out in cars and separate for the American owned auto manufacturers which were at that time known as the Big Four GM, Ford, Chrysler and American Motors. The gondola Pact agreement was that these four U.S. corporations would make guarantee unfermented investments in Canada and would maintainassembly operations in Canada in at least the same ratio to Canadian sales as in 1964. In return, the Canadian government removed all duties on cars and parts tack by these companies.Under the ground of the Canada-United States Automotive Products Agreement of 1965, competent force back vehicle manufacturers are able to import both vehicles and original equipment automotive parts duty-free from any Most Favoured Nation country, provided the quest performance requirements, are met The value of vehicles produced in Canada must meet or exceed a specified proportion of the manufacturers yearly sales in Canada. In other words, if manufacturers want to sell imported cars duty-free in Canada they must also build cars in Canada.Assemblers must maintain, on an annual basis, a nominal dollar amount of Canadian value added in assembly activity of atleast that reached in 1964. Canadian value added in Canadian vehicle assembly includes ingest and indirect labour, depreciation on Canadian-made machinery, eligible overhead and other expenses that can be reasonably allocated to the cost of producing the vehicles, and the Canadian value added in Canadian made parts and materials used in assembly. Inflation has rendered this requirement unnoticeable (http//strategis.ic.gc.ca/SSG/am00540e.html).During the 1970s, tercet events dramatically changed the world automotive industry and in special(prenominal) the North American industry the oil embargo of 1973 and 1974, the Iranian oil crisis of 1979, and the emergence of Japan as one of the worlds largestproducers of motor vehicles. Nixon wanted to offset this and secure the American auto industry and indeed implemented the domesticated International Sales Corporations. This was a low measure entity through which American products would be exported abroad. The plan provided a tax notice for American domestic industry to attach its exports. Its purpose was to keep American jobs in America (Laxer 135).Since Canada had the most concentration of branch plants, which were American owned, this ill affected Canada. The Ontario government study of the auto obligation a greement concurred that three problems existed affecting the auto industry as follows the inability for the auto industry to enhance productivity, the consistent loss of Canadas boilersuit market dispersal of the auto assembly activity and the overwhelming intensification of the parts trade deficit. The Domestic International Sales Corporation plan implemented by Richard Nixon support companies to locate in the United States and provided them with lucrative incentives.Since the inception of the Auto Pact, Canada and the United States pay back becomed a single North American market for vehicles. The Auto Pact allowed for the rationalization of the North American market for vehicle production. Since sign language the Auto Pact, the Canadian automotive industry has enjoyed unprecedented growth production whereautomotive manufacturing employment has increased 200% and automotive shipments grew from $2.2 billion in 1964 to $70.7 billion in 1995. Canadian economists and theCanadian au toworkers union view the Auto pact agreement as a savior from the small Canadian market and probably the only feasible way of offsetting the huge trade deficit.Others believe the benefits of the Auto Pact have all gone to U.S. imperialism. The conquering of the Canadian economy to U.S. imperialism increased as a result of the pact and trade deficits increased. Canada also surrendered any possible initiative to try and create its very own all Canadian car which would have been made and sold exclusively in Canada.Branch plant economies have always had a negative connotation. Any debates always raise concerns about the potentially negative consequences for regional development because of a high degree of external control by multinational firms. It is precisely this concentration of control activities both overseas or in one region that influences a regions economic performance. This influence on regional growth is manifested through various means. One is employment, specifically the job mix and job stability in a region and the second is expert change.Most branch plant economies are small inefficient firms that are incapable of promoting overall local development. Branch plant economies act more like an export platform which merely exist to extract valuable raw materials for export. They have littleeffect on the local economy in terms of encouraging self-reliant economic growth. Branch plant economies often use capital-intensive low labour technology which does notgenerate many new jobs for the local economy.Multinational corporations with branch plants in Canada tend to take their profits from the subsidiary andsend it back to the corporate headquarters in their home country earlier than reinvesting it in the local Canadian economy by additional hiring of personnel or by contribution to the infrastructure. Since they are in the same business or a derivative of such as their parent company it is easier for them to maintain their competitive edge without havi ng to liberally invest in research as their indigenous counterparts. Simply put these multinational companies take more money out of the Canada than they put in.The managerial familiarity in branch plants is minimal with dependent positions. Higher functions such as research, development and marketing are centralized within a class. The enormousness of the branch plant economy within a parent group is marginal or even non-existent and the quality of employment is mainly low skilled jobs, including part time and temporary positions. The link of the branch plant to the host economy is limited and the former is always vulnerable to closure, downsize or restructuring.The worst negative effect of branch plant economies are that they have created close ties with local government and banks to gain superior access to local finance. These ties allow multinational corporations to acquire the majority of investment capital whichdeters the rise of indigenous entrepreneurship. Branch plant e conomies have been directly responsible for Canadas astronomical trade deficit because American branch plants havebeen sucking the economic lifeblood from Canada for generations. Virtually any profits or technologies generated by Canadian workers ultimately are sent back to the United States. shortly multinational corporations are under increased pressure to lower be because of the increased import competition from low wage countries, additional opportunities to invest in low wage countries and increasing proficient change. While branch plants have played an historical role in Canada, there is a sense that these plants are more susceptible to the changes in foreign trade, foreign direct investment and technological change.Liberal economists or realists admit there are certainly some negative effects of the branch plant economy, yet they strongly believe that the advantages outweigh the disadvantages. They believe that foreign willpower and direct investment can be seen as instru ments for development in that branch plant economies bring in productive new technological advances that provide an economic boost for Canada.Branch plants have traditionally played a large role in verdant economies and rural economic development strategies as they have provided good stable jobs with relatively high allowance and full benefits. In fact, large, multinational corporations generally look to rural areas for low wageworkers and favorable business climates.The productivity difference surrounded by branch plants and single-unit home owned plants has increased by 57 percent between 1967 and 1992 (Watts 54). On average, branch plants in southern Ontario pay higher wages and are more productive than single-unit plants. This relationship holds nationally as well. The heading in wages is somewhat different. There is a large increase in the wage premiums of branch plant economies in 1982, but and so it declines over the 1982 to 1992 period. Moreover, by controlling the indu stry and location type, we can intermit that branch plants are concentrated in more productive, higher paying industries and tend to be located in urbanized areas of the region.Other positive data relating to the branch plant economy comes from recent information which states that the simple symptoms of the branch plant syndrome could be alleviated by organizational changes within large corporations (http//www.Entrepreneurstrategist/figure/nnt/odb.html October 11, 2001). Specifically, recent decentralization of managerial authority and functional responsibilities within some large corporations has led to improvements in the quality of branch plants. Consequently, branch plant economies have changed substantially over the past two decades and the negative connotation which is associated with the branch plant may no seven-day be an accurate representation.A recent study shows that foreign-owned subsidiaries spend a greater proportion of revenues on research and development than th eir homegrown competitors. Furthermore, a United Nations study dispels the myth that Canada is one of the foremost branch-plant economies. Canada actually bedded ninth among developed nations in 1997 (http//www.Unitednationsstatistics/worlddl/cig/eco/org. October 5, 2001). There are however cheerful views that Canada, because of its inventiveness, skilled workforce, economic efficiencies and political stability, plays above its weight as a competitive economy and cannot therefore be dismissed as rigorously a branch plant economy. In general branch plants offer to contribute significantly better employment opportunities.The following are just a few sample opinions on the branch plant phenomena from the worlds leading business investment specialists Foreign direct investment is not just a source of capital it creates jobs and helps us acquire leading-edge technology (http//www.Entrepreneurstrategist/figure/nnt/odb.html October 11, 2001). Transnational corporations strengthen our ec onomy, they help to create an elicit and innovative business surroundings for foreign investors to consider (http//www.Entrepreneurstrategist/figure/nnt/odb.html October 11, 2001). 20 years ago, many foreign governments saw foreign corporations as part of the developmentproblem. Today they see them as part of the solution (http//www.Unitednationsstatistics/worlddl/cig/eco/org. October 5, 2001.).Canada has had and will continue to have a huge deficit in fabricate goods unless dramatic changes are implemented. One third of the finished products consumed by Canadians are manufactured somewhere either than Canada (Laxer 115). Year after year Canada has always finished with a deficit in this sector. Without the surplus of our primary product exports, pulp and paper, lumber and oil our ability as Canadians to maintain a high standard of living would ultimately vanish (http//emerald.atkinson.yorku.ca/lspace35/2001y/pols3580/schedule.nsf).If Canada wants to foster technological literacy and enjoy the economic, social and intellectual well being in the long term it is imperative to institute an aggressive research and development political platform of its own. It may initially experience trade deficits, a declining share of numerate world exports, fewer job creations, and a decreasing industrial and technological capability, however these are just short term problems. If the country chooses to remain idle it will see an outflow of talent it cannot afford to lose. swan of end products brings with it control of the chain innovation for all the machinery and partsand components that go into the end product (Laxer 128). The net effect is that Canada would not control its own economic destiny because of invisible inflows or imports of new technologies. Canada would be at the mercy of decisions taken in the corporate interest of multinational enterprises rather than in the interest of the region or the national interest of the country.Finally, I do not believe the prev ious and current auto trade arrangement Canada has with the United States is not undermining Canadian regional development because we have gained considerably in the economic sector with the Auto pact of 1965, the free trade agreement and the North American Free Trade agreement. The auto industry is already 95 percent owned by the American companies and these agreements have not encouraged increased American content because the United States would have had a firm hold on the North American auto industry regardless if any of the above agreements were signed. These agreements helped Canada salvage some economic growth and prosperity. In the future, Canada should be extremely cautious when negotiating any free trade auto trading agreements given that the auto pact of 1965 is an excellent example of the potential disastrous effects of these agreements in an environment saturated with branch plant economies.