CANADA, DOING BUSINESS IN



Canada is the second-largest country in the world and shares the world's largest open border with the United States. Among the free market economies, it is one of the leading industrialized countries and is a member of the G7 group of economic powers. Along with the United States and Mexico, it is a partner in the North American Free Trade Agreement (NAFTA). Trade between Canada and the United States amounted to nearly $320 billion in 1997. These two countries are the world's foremost trading partners. In comparison, trade between the United States and Japan amounted to $192 billion in 1997 while trade between the United States and Western Europe totaled $298 billion. Canada and the United States are closely linked economically in terms of companies and industries. Canada is rich in natural resources and Canadians enjoy one of the highest standards of living. The open market economy encourages entrepreneurship.

The population of this vast country is about 30 million according to the 1996 census. The majority of the population lives in a narrow belt just above the northern borders of the United States. The three metropolitan areas of Montreal, Toronto, and Vancouver account for one third of the total population of Canada. The vastness of the country, the pattern of its population concentration, and the abundance of natural resources are factors that contribute to Canada's business environment.

Beginning with fur trade in the 17th century and continuing to the present time, the Canadian business scene has been dominated by resource-based industries. As business becomes global and as resource based industries lose their importance and profitability, the Canadian economy is turning to service and high technology industries. With a highly skilled workforce, Canada is hoping to bring about a structural change in its economy.

Another aspect of Canadian business history is protectionism. Canada's manufacturing industries and banking services were developed early in the 19th century. The abundance of natural resources and the sprawling underpopulated nature of the country contributed to the formation of markets that are thin and dispersed. Such an environment necessitated a certain amount of protection for industries to grow. The Canadian government enacted tariffs to protect manufacturing and trade. Two consequences of this policy were the growth of Canadian-owned enterprises and the establishment of branch plants by foreign businesses, mostly American. In the long run, Canada's protectionism resulted in its products being uncompetitive in the world market and in an economy that was overdependent on the export of resource products, such as timber and minerals. In principle, Canada's membership in NAFTA and the General Agreement on Tariffs and Trade (GATT), is a corrective measure to make the Canadian economy competitive in the emerging global market. In the short term, the structural changes necessary to move Canada's protectionist environment to a free market economy is causing dislocation in the manufacturing sector and creating human hardship. At the same time it is also a period of business opportunities. With its highly skilled labor pool and well-developed research and development facilities, Canada is ideally suited for entrepreneurial ventures in high technology and communications.

POLITICAL STRUCTURES

The Canadian government is modeled on British traditions. It is a parliamentary system as opposed to the presidential system in the United States. The queen of Britain, represented by the governor general, is the head of the state. The governor general is appointed on the recommendation of the Canadian prime minister, who is the leader of the majority party in Parliament. Real political power is in the hands of the prime minister and the cabinet who have collective responsibility and accountability to the legislature. The Canadian Parliament has two chambers, the House of Commons and the Senate. Unlike the American Senate, the Canadian Senate is not a directly elected body. The prime minister in consultation with the provincial governments appoints senators. The Senate can delay legislation and suggest amendments but cannot stop legislation that is proposed and passed by the House of Commons. Although there are parliamentary committees taking a detailed look at issues of concern, there is no process comparable to Senate hearings in the United States. Another difference is that the lobbying system in Canada is not as strongly organized and structured as in the United States.

Canada is comprised of ten provinces and three territories. Like the federal government, each province is headed by an appointed lieutenant governor who is the queen's representative. The political power rests with the leader of the majority political party within the provincial legislature, known as the premier. Within each province, there are municipalities, which form the third tier of government. All three levels of government provide various incentives to businesses. The Government Assistant's Manual, a continuously updated loose-leaf service by CCH Canadian Ltd., lists such federal and provincial incentives and assistance programs for businesses.

The legal system in Canada is based on British common law, except in the province of Quebec where, in civil matters, the French system of law prevails. Unlike the United States, where the Securities and Exchange Commission (SEC) regulates stock trading in public companies throughout the country, in Canada each province has its own regulatory body. In practical terms, the Toronto Stock Exchange (TSE) is the most important and popular trading center in Canada. The TSE comes under the jurisdiction of the Ontario Securities Commission; hence it controls most of the stock trading in the country. In that sense, it is Canada's most comparable institution to the SEC.

ECONOMIC STRUCTURES

Economically, Canada is closely linked to the United States. Often, even minor changes in the U.S. interest rates or stock exchange indexes have repercussions in Canada, as Canada's interest rates must be competitive with the United States in order to attract foreign capital. This limits the extent to which Canada can pursue an independent economic policy.

The main features of the Canadian economy are similar to those of the United States. Major corporations such as General Motors, Ford, and Procter & Gamble operate in both countries. The chief difference between the countries is in health care and social security, where Canada provides more comprehensive public coverage for its sick and disadvantaged. The high business overhead costs necessary to maintain such a system are neutralized by a healthy and secure workforce, even though such intangibles are not generally taken into account when financial decisions are made. Consistent with the high standard of living is high wages. Canada's productivity gains in recent years have been weak. About 30 percent of the labor force is unionized according to 1997 figures. Many unions are international, representing workers in both Canada and the United States. Industrial relations in Canada are relatively strife free and stable.

Canada is officially bilingual and product packaging is required by law to be printed in both English and French. In the province of Quebec, a knowledge of French is essential to doing business. Laws requiring official business to be conducted in French only are strictly enforced.

The transportation and communication systems in Canada are well integrated with those of the United States and offer the same advances in technology.

ECONOMIC OUTLOOK

The major chartered banks in Canada have predicted a growth rate of 2 to 2.5 percent for the nation's gross domestic product (GDP) in 1999, while a survey of Canada conducted by the Organisation for Economic Co-operation and Development (OECD) in the last quarter of 1998 states that the average annual growth rate will be 3 percent between 1998 and 2003. Toward the end of every year both the OECD and the International Monetary Fund (IMF) evaluate the economic conditions of their member countries. The 1998 surveys by both suggest a high level of confidence in the Canadian economy. The deficit budgets of the last several years have been reversed and a surplus budget is anticipated in 1999. The national debt, which is about 67 percent of the GDP, is forecast to be reduced to about 50 percent by 2003-2004. Such a measure will reduce Canada's vulnerability to foreign economic shocks. Canadian exports are likely to remain strong due to the lower value of its dollar. The exchange rate since August 1998 has been fluctuating around 65 U.S. cents for one Canadian dollar. If productivity gains can be further strengthened and if more investments can be made in education and research to make the country more innovative, the Canadian economic outlook will be brighter according to OECD and IMF.

Canadian sources that monitor the economic outlook are Canadian Outlook, published by the Conference Board of Canada, and Econoscope, published by the Royal Bank of Canada. The C. D. Howe Institute is another research organization that makes economic forecasts that are reported in the newspapers.

SOURCES OF CANADIAN BUSINESS
INFORMATION

The factors to be evaluated to determine the business environment in a country are discussed in the entry on "Business Conditions." Most of the sources of information at the international level suggested in that entry are applicable to Canada. Without providing the sources of information to monitor the constantly changing business environment, an article on doing business in Canada would be incomplete. A selection of the most important sources of Canadian business information is described here.

SOURCES OF GENERAL INFORMATION.

Canada Year Book, published by Statistics Canada—the federal government agency entrusted with the collection and dissemination of statistical data—contains textual descriptions and statistical data on all aspects of Canadian life. This is an excellent source to obtain an overview. The same agency also publishes a monthly, Canadian Economic Observer, which is a good analytical and statistical source to follow current business conditions. The web site for Statistics Canada provides the most up-to-date statistical releases, including census data. The economic and social time-series data is contained in their database CANSIM, which is also accessible through the web site. The Bank of Canada Review, a quarterly publication, has analytical articles on the Canadian economy and statistical tables with emphasis on the financial scene. The Globe & Mail and its business section, the "Report on Business," and the National Post with its business section, the "Financial Post," are the two national business newspapers. Both are available online and over the Internet.

SOURCES OF MARKET INFORMATION.

Market Research Handbook, a Statistics Canada publication, and FP Markets: Canadian Demographics are two annual volumes that provide market data by specific locations as well as by industry sectors. Trade and Commerce, a periodical published five times a year, devotes each issue to a market survey of a region of Canada. The survey includes even small towns in each region and gives all relevant information to set up business. The Conference Board of Canada has two periodic publications that give a feel for the business environment, the Index of Consumer Attitudes and Index of Business Confidence.

INDUSTRY INFORMATION.

Industry Canada has a web site, Strategis, that contains industry profiles and market intelligence reports generated by that federal department. Association Canada is an annual directory that helps to identify industry associations. Each entry in the directory includes the publications of that association. Canadian Advertising Rates and Data, a monthly publication, is a good tool for identifying trade journals in a specific industry or product field. The Canadian Index, which is available both in print and online, may be searched by keyword, industry, and product.

SOURCES OF COMPANY INFORMATION.

Canadian public companies file their disclosure documents electronically in a database called SEDAR, which is accessible through the Internet. Many companies have their own web sites in which a lot of information is provided about the company. Disclosure Select on CD-ROM and online is a service that provides access to the company filings with the Ontario Securities Commission. Since most Canadian stocks are sold through the Toronto Stock Exchange, in practical terms the Ontario Securities Commission filings are an important source of company information. The Canadian Index referred to earlier is equally important in retrieving articles on companies; it contains full text of many articles. There are numerous directories—such as The Canadian Key Business Directory, the National Directory of Canadian Service Companies, and the Scott's Directories, that enable one to isolate companies in an industry/service.

The sources referred to above should enable one to monitor and keep abreast of developments that affect businesses. Canada offers a stable, free market business environment and increased business opportunities in the context of the NAFTA.

[ Divakara K. (Dik) Varma ]

FURTHER READING:

Varma, Divakara K. "Canadian Business Rankings." Journal of Business and Finance Librarianship 2, no. 4 (1997).



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