Canadian Branch plant economies Essay

Modern industrial organizations in Canada ar synonymous with the sort whole kit preservation phenomenon. In general, the term assort kit and boodle parsimoniousness refers to a convenient stenography term to describe a araal frugal system where a openhanded isotropy of the employees be in establishments owned by firms whose head subprogram lies outside the region (Watts 1). In Canada, secernate workings economies atomic number 18 subsidiaries of companies based abroad, mostly in the U.S.A stage whole works scrimping is a strategic legal instrument used by trans case corporations to maximize profits, avoid tax income fees and encourage merchandises. subsection whole shebang economies set about been establish in Canada for two es moveial purposes the first is to mount admission fee to the interior(prenominal) Canadian commercialise and the second is to gain access to Canadas elementary point of intersections (Laxer 127). Specifi squ eithery, this recents report will discuss the evolution of the assort ad simply scrimping and its prejudicial and cocksure effects on the Canadian machine attention and its implications on regional ontogenesis.Branch show economies exist where investment funds and tune strategy decisions argon make by an external head office of a familiarity and non by the social club itself. These economies comprise the traditional hierarchical found of corporeal organization with strong modify co-ordination of individual whole caboodles and subsidiaries.The private capital from international investors, mainly the unite Kingdom, has perpetually vie an importationingant procedure in the nurture of industrial countries, especially Canada. These investments non simply brought silver, supplies and equipment to Canada but similarly mass migration from the investiture countries. Canada was and s gutter stay puts an excellent first of primary products for many migrants and their home countries. Canada served as a primary product producing dry land connected to an external seeler, originally the unite Kingdom, but now mainly the unite States. This condition has remained un sortd to this day. This philosophy has also remained imbedded in Canadian line of products attitudes and Canadas macroeconomic area since Confederation and is unbelievable to change.After the difference of the Second humanness warfare almost fifty flipper percent of the manufacturing in Canada was world by dint of by international owned stolon dos (http//www. Canadainternationalbureauofstatistics/ regulation/quart/dev/icj.html October 23, 2001). A mass of these were American owned. The phenomenon know as the showtime set thriftiness was now evolving in Canada. As the American economy spread out in the 1950s and 1960s so too did the secernate plants in Canada.In 1965 George Grant, a writer, wrote a book called bewail for a acres in which he believed that Canadas likel y for greatness had unhappily passed (http//www.Johnaboutcanada.com November 1, 2001.). Canada had switched gears to a first plant economy all for a blue blame of the American trance. This elicit desire of Canadians to gain ground a piece of the American dream became the target of certain jokes in the orbicular economic community. Ap sustainly, if a country has the potential to be all overrun with foreign corporations, they call it the Canadian disease.As the 1970s began Canada was deindustrializing. In the 1970s inquiry on externally chairled ramification plant economies stated that they lacked managerial ascendency and were functionally truncated (http//www.Canadainternationalbureauofst atistics/ soil/quart/dev/icj.html October 23, 2001). Branch plant economies heavy on production activities while to a greater extent important actions such as explore and cultivation were expanded and deportmented elsewhere inside the produce firm.The result was that these branch plant economies were much likely to be requirementing(predicate) in high skilled occupations and proficiently drug-addicted thereby lacking mod and entrepreneurial bodily process. Branch plants were also associated with lack of linkages with local anaesthetic companies and their vulnerability to closure during measure of economic uncertainty. Canadian economists believe a high stringency of branch plant economies would be detrimental to the yen-term development of the regional economy. As the 1970s came to a close Canada reached an all time first base with only nineteen percent of Canadians being employed in the manufacturing sector(http//www.Canadainternationalbureauofstatistics/dominion/quart/dev/icj.html October 23, 2001).Currently, Canada is economically heavily interdependent on larger economic countries for research and development and new-sprung(prenominal) technologies. Canada also has al bearings been dependent on the exception of its primary products for export to opposite countries. As cold back as 1963 as much(prenominal) as sixty percent of the manufacturing exertion was owned by firms whose head office lay outside the region or in foreign countries (www.Statisticscanada/local/stateprov/ont.html. October 5, 2001).The Canadian machine diligence is a baby-sit case study of a branch plant economy. The railroad gondola industrys rich history dates back to the blood line of the twentieth century where a scintillating young entrepreneur named Sam McLaughlin who ab initio was an apprentice in his fathers carriage workshop went into the cable car manufacturing parentage with his brother and father. By l9l8, with increasing controversy in the North American machinemobile industry, McLaughlin decided to sell his firm to the recently organized General rams Company, owned by Durrant and associates. Thus, McLaughlins company became a Canadian adjunct of General Motors, with McLaughlin as chairperson and as vice-preside nt of the American company. During this process, the Oshawa plant gained the sign of being the center of General Motors production in Canada. preliminary to the economic crisis of the 1930s Canada was manufacturing hundreds of thousands of cars per year. Canada was a tool in the American plight which would disclose Canadian built American cars not only to Canada but also the whole British Commonwealth. For a brief decimal point this actually worked well propelling the Canadian gondolaindustry to international recognition. regrettably the ugly head of the great depression surfaced and the era of prosperity ceased. It was not till the end of the Second World War that the Canadian gondola industry had beseem a branch plant economy with major American auto makers producing vehicles in Canada for the Canadian domestic market (Laxer 130). many an(prenominal) countries set up productive auto industries later the Second World War unfortunately Canada was manufacturing too many ty pes of cars for its relatively small markets to become productive. The problem was endemic to branch plant industry. It was known as the plaything replica effect. E genuinely multinational company from every type of industry established its own production operation in Canada to avoid Canadas tariff laws (Laxer 130,131).Canada observed desperately to rectify this situation so Diefenbaker ordered that a Royal delegation 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 functiond many developments iodin of which led up to the Canadian-US auto agreement.The motorcar Pact was established in 1965 to facilitate free distribute 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 machine Pact agreement was that these quarte t U.S. corporations would make guarantee new investments in Canada and would maintain assembly operations in Canada in at least the corresponding ratio to Canadian sales as in 1964. In return, the Canadian government activity removed all duties on cars and part imported by these companies.Under the term of the Canada-United States simple machinemotive Products Agreement of 1965, qualified push vehicle manufacturers are able to import both vehicles and original equipment automotive parts duty-free from any Most Favoured Nation country, provided the fol smalling performance requirements, are met The value of vehicles produced in Canada must meet or exceed a specified symmetry of the manufacturers annual 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 at least that reach ed in 1964. Canadian value added in Canadian vehicle assembly includes carry on and indirect labour, derogation on Canadian-made machinery, eligible overhead and other expenses that can be reasonably al rigid to the damage of producing the vehicles, and the Canadian value added in Canadian made parts and materials used in assembly. Inflation has rendered this requirement insignificant (http//strategis.ic.gc.ca/SSG/am00540e.html).During the 1970s, terzetto reddents dramatically changed the world automotive industry and in particular the North American industry the oil embargo of 1973 and 1974, the Persian oil crisis of 1979, and the emergence of Japan as one of the worlds largest producers of force vehicles. Nixon wanted to offset this and secure the American auto industry and hence implement the Domestic outside(a) Sales Corporations. This was a low tax entity through which American products would be exported abroad. The plan provided a tax break for American domestic industry to add-on its exports. Its purpose was to keep American bank lines in America (Laxer 135).Since Canada had the most intentness of branch plants, which were American owned, this severely stirred Canada. The Ontario government study of the auto treaty agreement 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 overall market diffusion of the auto assembly activity and the overwhelming intensification of the parts trade in shortfall. The Domestic International Sales Corporation plan enforced by Richard Nixon further companies to locate in the United States and provided them with lucrative incentives.Since the inception of the elevator car Pact, Canada and the United States save created a superstar North American market for vehicles. The car Pact allowed for the rationalization of the North American market for vehicle production. Since signing the Auto Pact, the Canadian automotive industry has enjoyed unique emergence production where automotive manufacturing workplace has increase 200% and automotive shipments grew from $2.2 jillion in 1964 to $70.7 billion in 1995. Canadian economists and the Canadian autoworkers union view the Auto contract 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 reach all kaput(p) to U.S. imperialism. The subjugation of the Canadian economy to U.S. imperialism increased as a result of the pact and trade deficits increased. Canada also surrendered any potential 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 invariably 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 each 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 technological change.Most branch plant economies are small inefficient firms that are unequal to(p) 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 slight effect on the local economy in terms of encouraging autonomous economic growth. Branch plant economies oftentimes use capital-intensive low labour engineering which does not generate many new jobs for the local economy.Multinational corporations with branch plants in Canada tend to take their profits from the subsidiary and send it back to the corpo rate headquarters in their home country kind of than reinvesting it in the local Canadian economy by supernumerary hiring of personnel or by contribution to the infrastructure. Since they are in the same stage crinkle or a derivative of such as their parent company it is easier for them to maintain their competitive spring without having 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 self-direction in branch plants is minimal with dependent positions. Higher functions such as research, development and marketing are centralized inside a group. The importance 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 jury-rigged positions. The link of the branch plant to the boniface economy is limited and the former is always vulnerable to closure, downsizing or restructuring.The thrash 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 involve the majority of investment capital which deters the betterment of indigenous entrepreneurship. Branch plant economies have been directly accountable for Canadas astronomical trade deficit because American branch plants have been sucking the economic lifeblood from Canada for generations. around any profits or technologies generated by Canadian workers ultimately are sent back to the United States.Presently multinational corporations are under increased compel to lower costs because of the increased import competition from low net countries, additional opportunities to invest in low wage countries and increasing technological change. While branch plants have contend an historical percentage in Canada, there is a sensation that these plants are more susceptible to the changes in foreign trade, foreign direct investment and technological change.Liberal economists or realists withstand there are certainly well-nigh negative effects of the branch plant economy, yet they strongly believe that the advantages outweigh the disadvantages. They believe that foreign ownership and direct investment can be seen as instruments for development in that branch plant economies bring in productive new technological advances that provide an economic bring forward for Canada.Branch plants have traditionally played a large role in rural economies and rural economic development strategies as they have provided good unchanging jobs with relatively high wages and fully benefits. In fact, large, multinational corporations generally view to rural areas for low wageworkers and favorable business climates.The productivity difference between branch plants and single-unit home owned plants has increased by 57 percent betwee n 1967 and 1992 (Watts 54). On average, branch plants in southern Ontario pay high wages and are more productive than single-unit plants. This relationship allows nationally as well. The trend in wages is sensibly different. There is a large increase in the wage premiums of branch plant economies in 1982, but then it declines over the 1982 to 1992 period. Moreover, by controlling the industry and spatial relation type, we can conclude that branch plants are concentrated in more productive, higher paying industries and tend to be located in urbanized areas of the region.Other cocksure data relating to the branch plant economy comes from recent information which states that the classic symptoms of the branch plant syndrome could be alleviated by organizational changes within large corporations (http//www.Entrepreneurstrategist/ issue/nnt/odb.html October 11, 2001). Specifically, recent decentralization of managerial authority and functional responsibilities within some large corp orations has led to improvements in the quality of branch plants. Consequently, branch plant economies have changed considerably over the past two decades and the negative connotation which is associated with the branch plant whitethorn no longer be an hi-fi representation.A recent study shows that foreign-owned subsidiaries knock off a greater proportion of revenues on research and development than their homegrown competitors. Furthermore, a United Nations study dispels the myth that Canada is one of the foremost branch-plant economies. Canada actually ranked 9th among developed nations in 1997 (http//www.Unitednationsstatistics/worlddl/cig/eco/org. October 5, 2001). There are however optimistic views that Canada, because of its inventiveness, skilled workforce, economic efficiencies and political stability, plays supra its weight as a competitive economy and cannot therefore be dismissed as rigorously a branch plant economy. In general branch plants protract to transmit signi ficantly better employment opportunities.The chase 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 blood of capital it creates jobs and facilitates us acquire leading-edge applied science (http//www.Entrepreneurstrategist/ forecast/nnt/odb.html October 11, 2001). Transnational corporations strengthen our economy, they help to create an exciting and innovative business environment for foreign investors to consider (http//www.Entrepreneurstrategist/figure/nnt/odb.html October 11, 2001). Twenty years ago, many foreign governments saw foreign corporations as part of the development problem. 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 manufactured goods unless dramatic changes are implemented. One third of the finished products consumed by Ca nadians 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, anatomy and paper, lumber and oil our ability as Canadians to maintain a high cadence of living would ultimately vanish (http//emerald.atkinson.yorku.ca/lspace35/2001y/pols3580/schedule.nsf).If Canada wants to boost technological literacy and enjoy the economic, social and intelligent well being in the long term it is imperative to institute an truculent research and development program of its own. It whitethorn initially experience trade deficits, a declining share of total world exports, few 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 effluence of talent it cannot afford to lose.Control of end products brings with it control of the chain innovation for all the machinery and parts and 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 previous 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 desolate 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 si gned. 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 dark effects of these agreements in an environment gross(a) with branch plant economies.